More than a million borrowers defrauded by for-profit schools have had billions of dollars worth of federal student loans reduced through government-backed programs. But people with personal loans have generally been excluded from any relief until recently.
Navient, a large holder of private student loans, has created a program through which borrowers can apply for loan forgiveness, but has not made it public. Some successful people have happily shared their stories in chat groups and other forums.
“I cried a lot,” said Danielle Maynard, who recently received notice from Navient that about $40,000 in personal loans she owed to study at the New England Institute of Art in Brookline, Massachusetts, would be paid off.
Navient, based in Wilmington, Delaware, did not disclose the discharge program that helped Mr. Maynard. Other borrowers complained on social media about difficulties getting their applications. When asked about the program and the criticism, a company spokesperson said, “Borrowers can contact us at any time and our advocates are available to assist.”
So a group of nonprofit lawyers stepped in to streamline the process. On Thursday, the Predatory Student Lending Project, a Boston-based advocacy group, posted Navient's application form and an instruction guide for private loan borrowers seeking relief. The school lied to them.
Group director Eileen Connor said: “We want to level the playing field and let people know, rather than keep it this secret.”
Sen. Elizabeth Warren, a Massachusetts Democrat, and eight Senate colleagues sent a letter to Navient last month with a long list of questions about the program. Navient responded, but did not directly answer many of the senators' questions.
Navient's new program, called “School Misconduct Waiver,” is privately similar to a federal program known as “Borrower Defense to Repayment,” which allows people who have been seriously misled by their schools to get rid of their federal student loans. . Under President Biden, the Department of Education revived the relief program and used it to forgive nearly $30 billion in debt owed by 1.6 million borrowers.
The Project on Predatory Student Lending supported a class action lawsuit against the government that resulted in a 2022 settlement that will see nearly 200,000 borrowers have their federal student loan debt forgiven. Maynard, 34, forgave $38,000 in federal loans through the deal.
But she, like many borrowers, was still stuck with private student loans. Ms. Maynard has been paying Navient $700 a month for more than 10 years to pay off her personal loans.
For nearly a decade in the early 2000s, Navient, then known as Sallie Mae, contracted with for-profit schools to provide private loans to students. A lawsuit later filed by the state attorney general accused Navient of making those loans knowing most of them would never be repaid. Many schools have agreed to indemnify Navient for their personal loans and cover the company's losses if the loans default.
In 2022, Navient reached a settlement with 40 state attorneys general to forgive $1.7 billion in debt on those personal loans. However, this only applies to borrowers who have already defaulted on their loans. Because those debts were likely never to be repaid, Navient said in a regulatory filing that the transaction cost only $50 million. Borrowers who had continued to make their payments, like Mr Maynard, remained stuck.
But a pressure campaign from lawmakers, federal regulators and lawyers representing borrowers led the company to create a “school misconduct exemption.”
Navient this year began sending a 12-page application form to some borrowers who complained about their personal loans. The document lists dozens of types of inappropriate conduct by schools, including inflating employment rates and graduate earnings or misrepresenting educational programs, and asks borrowers to select those that apply to their experience. Applicants must submit documentation supporting their claims.
After Ms. Maynard's federal loans were repealed last year, she stopped making payments on her personal loans and called Navient to seek relief.
A few months ago, Navient sent her a misconduct termination form. A few weeks later, she received notice that her application had been approved.
The senator's letter to Navient said the personal loan repayment process was “burdensome and confusing.” He also asserted the legal basis for the borrower's claim that the loan should be cancelled. This is the so-called Holder Rule, a 1975 regulation from the Federal Trade Commission that allows people with certain types of loans to contest their debt. If the product you purchased is fraudulent.
Navient's response to senators acknowledged this rule as the basis for its argument. “We are committed to canceling all loans that meet the Holder Rule criteria,” Navient CEO David Yowan wrote in a letter reviewed by The New York Times.
The letter said Navient has forgiven “some” loans for borrowers who filed claims under the rules and “recently introduced enhanced procedures for borrowers to seek forgiveness,” which it described as “still in the early stages.” .
Mr. Yowan told investors on a conference call in January that Navient had set aside $35 million in reserves for school misconduct losses. 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 eligible for the debt relief program.
“Navient has admitted responsibility for predatory loan cancellation, but has created a cancellation process that is impossibly confusing for borrowers,” Senator Warren said in a written statement this week.
Some attempts to explore the process have already failed.
Thomas Jean-Mastej had his student loans canceled through the Borrower Defense Program to study at American InterContinental University, a school the Federal Trade Commission had singled out for deceptive recruiting tactics. Last March, he filed a complaint with the Consumer Financial Protection Bureau regarding a personal loan.
Navient responded by sending him a motion to dismiss for school misconduct that he filed in mid-April. On May 10, he received a rejection notice. Navient said it “carefully considers a variety of factors when determining whether a personal loan should be terminated” but did not specify why his claim was denied.
Mr. Jean-Mastej said he hoped Navient would have “some sympathy.” Especially since he had already repaid the company nearly $17,000 over the years for loans worth less than $7,000. He still owes nearly $4,000.
Many others were left in limbo waiting for a response. Thomas Carter learned about Navient's program on a Reddit forum. Following the steps recommended there, he filed a complaint with the Department of Consumer Affairs and then received an application from Navient. He sent it three weeks ago.
“My thought was, ‘Why is this such a secret?’” Mr. Carter, who attended the York Art Museum in Pennsylvania, said: “I had to go through all these processes to get the application.”