Borrowers urged to apply for Navient's private student loan forgiveness

There's been much ado about federal student loan forgiveness with little relief directed to students holding private student debt. However, a little-known program directed by private student loan lender Navient is forgiving private loans for borrowers seeking relief on the grounds that their school lied to them.

The Project on Predatory Student Lending (PPSL) launched a campaign to raise awareness of the servicer's "School Misconduct Discharge Application." The application gives borrowers who experienced misconduct at their school the right to apply directly for discharge of private loans, marking a long-overdue recognition of borrower rights, PPSL said.

In January 2022, Navient entered into a settlement with 39 state attorneys general regarding its lending practices at several for-profit schools and canceled $1.7 billion in debt on the affected private loan. However, the action only impacted borrowers who had already defaulted. Navient began sending its discharge application to borrowers who complained about their loans but had not defaulted.

For nearly a decade, starting in 2000, Navient—then known as Sallie Mae—engaged in predatory loan practices with fraudulent, for-profit colleges in exchange for a steady supply of borrowers. Many of these loans remain in Navient's portfolio. They are eligible for cancellation due to their misconduct and under the Federal Trade Commission's Holder-In-Due-Course Rule, which allows borrowers to raise the same claims and defenses against a loan provider they could raise against the original seller of the good or service.

"Today we are making a concerted effort to illuminate the pathways to cancellation available to student borrowers with private loans who were cheated by their schools," PPSL Executive Director Eileen Connor said. "Private student loans have always carried basic consumer protections like borrower defense, yet lenders and servicers have obstructed borrower efforts to realize them, individually or at scale.

"This Navient application is an opportunity for borrowers who experienced misconduct to finally seek relief for their private loans and is a direct result of our clients' persistence," Connor continued. "We're spreading the word to ensure that impacted borrowers—not just those that Navient hand picks—know that there is a path to relief."

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Lawmakers want loans automatically discharged

Navient has set aside $35 million in anticipation of liability to cancel these predatory legacy loans. A group of lawmakers led by Sen. Elizabeth Warren, D-Mass., is concerned that the application process for discharge is too difficult and may leave some borrowers who should qualify for forgiveness out in the cold.

While the PPSL campaign is designed to draw more attention to this program, Navient's 12-page application is complicated and lawmakers are pushing for the lender to automatically provide relief to borrowers using information the company already has about whether borrowers attended schools that would entitle them to relief. Lawmakers want this relief to happen before Navient transfers its 2.7 million student borrower loan portfolio to the Higher Education Loan Authority of the State of Missouri (MOHELA) at the end of 2024.

"Navient should stop making borrowers apply for relief and instead automatically cancel student debt using information the company already has about whether borrowers attended schools that would entitle them to relief," said the senators. "Given MOHELA's failure to follow guidance on canceling predatory federal loans, it is hard to believe that it will behave any better in canceling similar private loans Navient will transfer to them."

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Federal student loan cancellations hit new high

The Department of Education has wiped out $28.7 billion in federal student loans for more than 1.6 million borrowers whose schools cheated them, saw their institutions precipitously close, or are covered by related court settlements.

Beyond this, President Joe Biden has cancelled roughly $167 billion of student debt for 4.75 million Americans. Forgiveness has primarily come through revamped income-driven repayment plans.

Biden also proposed a new federal student debt forgiveness plan as a follow-up to his initial debt cancellation plan, which the Supreme Court blocked in June. The plan would waive up to $20,000 for millions of borrowers whose balances have grown because of unpaid interest. It would automatically discharge debt for borrowers eligible for loan forgiveness under SAVE, closed school discharge, or other forgiveness programs, even if they are not enrolled.

Additionally, student debt for borrowers who entered repayment for 20 or more years would be discharged. The plan would also provide relief to borrowers who experience hardship in paying back their loans.

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