Twelve Dramatic Changes Offering Relief for Student Loan Borrowers

 

There have been dramatic changes in 2021 and 2022 making it easier for tens of millions of student loan borrowers to cancel or repay their debt. This article highlights twelve of the most significant changes.  Additional information is found in NCLC’s Student Loan Law and at studentloanborrowerassistance.org. 

But the changes do not stop here.  Expect additional actions later this year. For example, the Department of Education (the Department) has proposed new rules affecting the Public Service Loan Forgiveness Program, interest capitalization, borrower defense, arbitration and class waivers, disability discharge, closed school discharge, and false certification discharge. See 87 Fed. Reg. 41,878 (July 13, 2022).  If enacted in final form by November 1, 2022, the new rules will become effective on July 1, 2023, and some may be implemented sooner. Additionally, President Biden announced the outlines of a proposed new income-driven repayment plan on August 24, 2022, and the full text of the proposed regulations is expected any day now.

Preparing Borrowers to Take Advantage of New Rights and Relief Programs

Many of the new rights and relief programs apply only to certain types of loans. To discern which of the new relief opportunities might be available to a borrower and to assit a borrower in hearing about and accessing those opportunities, complete the following steps:  

1. Determine what types of loans the borrower has, and which entity holds the loans.  There are many different types of federal student loans, and there are also private student loans. If the borrower has federal loans, it is important to determine what type of federal loans the borrower has and what entity holds the loans. Direct Loans are eligible for many of the new rights. Other types of federal student loans sometimes are eligible as well, particularly when they are held by the Department of Education.

To determine what kind of federal student loans a borrower has and who holds them, log into studentaid.gov and click “view details” of “My Aid.” This should show a list of the borrower’s federal student loans.  To see who holds the loan, look under “My Loan Servicers”—if the name starts with “DEPT OF ED,” the loan is held by the Department of Education.  Alternatively, call the Federal Student Aid Information Center (FSAIC) at 1-800-4FED-AID (1-800-433-3243).

2. Determine whether the borrower will need to consolidate some or all their loans to access these new rights, whether any deadlines to consolidate apply, and whether there are downsides to consolidation for a specific borrower. Where Federal Family Education Loans (FFEL) or Perkins Loans that are not held by the Department of Education, the borrower may become eligible for some of the rights described below by consolidating into a Direct Consolidation Loan before a specific deadline. More on consolidation is found at NCLC’s Student Loan Law § 7.2.4.

3. Determine who is servicing the borrower’s loan, particularly since, as described at #12 below, several of the major servicers that were handling Department-held loans prior to the pandemic are no longer doing so—thus many borrowers now have new servicers.  Log onto studentaid.gov and go to “My Loan Servicers” as described above or contact the FSAIC at the numbers listed above.

4. Update any contact information. As soon as possible, the borrower should verify that their email and street address are correctly listed with the servicer and on studentaid.gov, and if not, update them as needed.  If the Department or the borrower’s servicer cannot contact a borrower at the correct email or physical address, the borrower may lose important rights or even refunds.

Tax Note:  Through the end of 2025, any relief a borrower receives as forgiven debt—whether it is a federal or private student loan—is not taxable for purposes of federal taxes.  This includes the recently announced $10,000 or $20,000 of cancelled debt for most federal loan borrowers. See NCLC’s Student Loan Law § 10.15.

New Right # 1: $10,000 or $20,000 One-Time Debt Cancellation

On August 24, 2022, the Biden Administration announced a one-time program to cancel $10,000 in federal student loan debt for income-eligible borrowers and to cancel $20,000 for income-eligible borrowers who had previously received a Pell Grant.  Only individuals with incomes under $125,000 or those filing a joint return or as head of household with an income under $250,000 qualify. 

Relief is capped at the amount of the loan balance, so that the amount of cancellation will never exceed the amount due on the loan.  Instead, all relief will be provided as a reduction of a borrower’s loan balance.  If the balance is under $10,000 or $20,000 as applicable, the loan will be fully discharged. If the loan amount exceeds that, the loan balance is reduced. The Department has announced it will reamortize loans that are reduced through this plan, which will reduce many borrowers’ monthly repayment amounts. Borrowers on standard repayment plans are likely to have their monthly bill decrease significantly if cancellation significantly reduced their outstanding balance.  

The Department has estimated that eight million borrowers may be eligible to receive relief automatically because relevant income data is already available with the Department based on recent Free Applications for Federal Student Aid (FAFSA) or income-driven repayment applications. If the Department does not have an individual’s recent income data, then the borrower will have to apply for the relief.  The Administration has said that they hope to have an online application available by early October, with a paper application and an application in Spanish to follow. Sign up for updates to learn when the application will be available by going to www.ed.gov/subscriptions and checking the box for “Federal Student Loan Borrower Updates.” Borrowers can apply until the end of 2023, but borrowers are encouraged to apply by November 15, 2022, if they want their loans to be cancelled or reduced before the end of the payment pause on January 1, 2023.

The relief announced currently only applies to those with Federal Direct Loans or other loans eligible for the payment pause (a chart of eligible and ineligible loan types is available here). The Administration has stated that it is working to expand eligibility to all federal student loan types, but currently commercially-held FFEL loans and school-held Perkins loans are ineligible. UPDATE: On September 29, the Administration stated that borrowers with ineligible loan types may no longer consolidate their loans into a Direct Consolidation Loan to make them eligible for cancellation as of that date. Borrowers should also be careful about consolidating ineligible loan types with eligible loan types beginning September 29, as the Administration's new guidance suggests that from that date on the inclusion of ineligible loan types in a Direct Consolidation application will render the entirety of the resulting Direct Consolidation Loan ineligible for the cancellation plan (though some borrowers may still benefit from such consolidation, such as if, for example, it would result in full loan forgiveness via the PSLF Waiver detailed in #4 below). 

NCLC’s Student Loan Borrower Assistance blog has more on the debt cancellation program here.

New Right #2: Payment Pause Extended Until January 1, 2023

For the remainder of 2022, the Department has announced that borrowers will continue to be excused from making payments on all eligible federal student loans, including Direct Loans, Department-held FFEL and Department-held Perkins Loans, and defaulted FFEL loans.  In addition, during the payment pause:

• Interest will not accrue;
• Tax refunds (and child tax credits) will not be withheld;
• Wages will not be garnished;
• Social Security payments will not be withheld;
• Collection calls and billing statements will not be sent out;
• Time during the pause, dating back to March of 2021, will count toward Income-Driven Repayment forgiveness for borrowers in IDR, and will count toward Public Service Loan Forgiveness for borrowers who are otherwise eligible.

The Department has stated that this is the last extension of the payment pause and that it will not be extended into 2023.

New Right #3: Fresh Start for Borrowers in Default

As the Department of Education works to improve repayment and servicing policies so that fewer borrowers default in the future, it has also announced that it will provide borrowers with federal student loans that are currently in default with a temporary opportunity for a “Fresh Start” in repayment. The Fresh Start program eliminates the impact of delinquency and default and will allow borrowers to reenter repayment in good standing when the payment pause ends. The loans eligible for Fresh Start are Direct Loans, FFEL loans (regardless of whether they are Department-held or commercially held), and Department-held Perkins Loans that entered the payment pause in default.

Some benefits of the Fresh Start program have already begun:

• As of July 10, 2022, eligible loans’ default notations have been removed from CAIVRS (a federal government database of delinquent federal debtors ).
• Borrowers with defaulted loans have had their eligibility for federal student aid restored—they can apply now for new federal student aid to help them go back to school or complete their program.

For borrowers who rehabilitated their loans during the payment pause, that rehabilitation will not count against their one-time rehabilitation limit—meaning that if they default again, they will have another opportunity to rehabilitate out of default. The Department has also stated that it will automatically update credit reporting for eligible loans in a manner designed to help borrowers maximize the benefits of Fresh Start while avoiding unfair adverse impacts, including by:

• Deleting reporting about loans that have been delinquent for more than seven years, even if the borrower enrolls in a repayment plan through the Fresh Start initiative;
• Reporting all other defaulted loans to credit reporting agencies as “current” and not in a collection status; and
• Using a loan’s original date of delinquency if borrowers become delinquent or go into default again after this Fresh Start opportunity to make sure that the borrower’s seven-year credit reporting timeline does not restart as a result of Fresh Start.

Some of the most important benefits of Fresh Start will come during a one-year period when the payment pause ends. For one year after student loan payments resume, borrowers with eligible defaulted federal student loans will not be subject to any collection efforts, including wage garnishment, Social Security offset, and tax refund offset. During this one-year period, borrowers will have the opportunity to get out of default long-term by enrolling in an income-driven repayment (IDR) or making other repayment arrangements, without having to consolidate or rehabilitate their loans.  The Department has said that borrowers can make payment arrangements by visiting myeddebt.ed.gov, calling the Default Resolution Group at 1-800-621-3115, or contacting their loan holder by phone or in writing. Borrowers who make payment arrangements, or who request to be transferred to a non-default servicer during the one-year period will be transferred to a non-default loan servicer and will be fully removed from default. But borrowers who do not act will be returned to default—and once again subject to collection, ineligibility for federal student aid, and adverse credit reporting—after the one-year period ends.

New Right #4: Public Service Loan Forgiveness Waivers, with October 31 Deadline to Act

The Public Service Loan Forgiveness (PSLF) Program offers to cancel remaining balances on eligible federal Direct Loans for borrowers who work full-time in public service jobs and make 120 qualifying monthly payments through an eligible repayment plan. Specific requirements for obtaining the discharge are complex, servicer communication has been poor, and very few borrowers have succeeded in obtaining forgiveness despite making ten years of payments while working in public service.

Until October 31, 2022, the Department is providing a one-time waiver from many of the complex requirements that have led to denial of forgiveness applications under PSLF or that have led borrowers to be credited with less time toward their forgiveness clock. For example, many borrowers have been told they are ineligible for PSLF because they had the wrong kind of loan, and many did not get credit for all their time in repayment because they were in the wrong repayment plan, or because they consolidated their loans and lost credit for payments they made prior to consolidation. Borrowers who apply by October 31, 2022, can receive credit toward eventual cancellation for many previous periods of repayment that would otherwise not qualify for PSLF for these and other reasons. This will allow many borrowers to get their loans canceled sooner, and some borrowers to get their loans cancelled immediately. 

The primary benefits of the waiver include:

• Past periods of repayment on loans that were later consolidated will count toward PSLF.
• Past periods of repayment in any repayment plan will count toward PSLF. 
• Past periods of repayment made on Federal Family Education (FFEL) Program loans and Perkins Loans will count toward PSLF but only if a borrower consolidates these loans into a Direct Consolidation Loan and applies for PSLF before October 31, 2022.

• Past forbearance periods of 12 consecutive months or greater, or 36 cumulative months or greater, will count toward PSLF. 
• The period of service for the Teacher Loan Forgiveness (TLF) Program will also count toward PSLF if you submit a PSLF application form for the same time period.
• Borrowers may receive cancellation even if they are no longer employed by a qualifying employer at the time they apply for or receive cancellation.

Borrowers who took out only Direct Loans, or who previously consolidated into a Direct Loan and were assigned to the PSLF loan servicer (MOHELA or FedLoan Servicing) and who have already submitted the PSLF employment certification (ECF) form for all the time they have been in repayment while working in qualifying public service do not need to take action, and the Department will automatically provide credit for past payments.

Other borrowers with Direct Loans without a determination of eligible employment or where the application was denied will have to take action by October 31, 2022, to take advantage of the waiver.

FFEL or Perkins borrowers who want to take advantage of this one-time waiver must apply to consolidate the loan into a Direct Loan and submit an ECF form by October 31, 2022. Payments made before consolidation will count toward the 120 payments.See NCLC’s Student Loan Law § 10.10.5.4. Borrowers who consolidate their FFEL or Perkins Loan before October 31, 2022, can even count past FFEL or Perkins Loan payments toward PSLF. See NCLC’s Student Loan Law § 10.10.5.5. 

The Department is taking two other actions regarding the PSLF program.  It announced data matches to give active-duty borrowers credit for deferments and forbearances toward the PSLF without having to submit an application. However, Department officials still recommend that borrowers that have served in the military submit an employer certification form so that their account will be processed before the waiver expires. It is also reviewing denied PSLF applications for errors and giving borrowers the ability to have their PSLF determinations reconsidered.

For more on the PSLF program, see NCLC’s Student Loan Law § 10.10. For step-by-step advice on taking advantage of the temporary PSLF waiver, see NCLC’s blog Public Service Workers: Take Action by October 31, 2022 to Take Advantage of Temporarily Improved Loan Forgiveness Rules. There is also a new servicer for the PSLF Program, MOHELA, the Higher Education Loan Authority for the state of Missouri.

New Right #5: Income-Driven Repayment Account Adjustment and Tracking Time Toward Forgiveness

A number of income-driven repayment (IDR) plans for federal student loans promise to forgive any remaining loan balance after twenty or twenty-five years of qualifying payments. However, as with PSLF, a combination of servicing failures and program complexity has resulted in very few borrowers ever receiving forgiveness. Further, there has been no process in place for systematically tracking borrowers’ qualifying time earned towards forgiveness, and recent revelations suggest that servicers’ existing records for counting qualifying time are flawed and unreliable.

In April 2022, the Department announced that to “remedy years of administrative failures that effectively denied the promise of loan forgiveness,” it would conduct a one-time account adjustment whereby it will recount the number of qualifying months that Direct Loan borrowers have earned toward forgiveness, while waiving a number of restrictions as to what counts as qualifying time. FFEL borrowers can take advantage of these one-time adjustments if they consolidate into a Direct Consolidation Loan before the Department concludes its recount of the months that count towards repayment, which the Department announced will likely not be before January 1, 2023.

Under this one-time adjustment, the following will automatically count towards cancellation under any of the income-driven repayment plans:

• Any months in which borrowers made payments regardless of the payment plan;
• Any months in which borrowers made payments regardless of the payments made or loan type; 
• Any time in repayment prior to consolidation on consolidated loans;
• Any months spent prior to 2013 in a deferment other than an in-school deferment;
• Past forbearances of more than 12 consecutive months;
• Past forbearances that cumulatively exceed 36 months.

Borrowers who have forbearance periods of less than the aforementioned 12-month or 36-month thresholds may consider asking the student loan ombudsman to count those months towards forgiveness by submitting a complaint here: https://studentaid.gov/feedback-center/. In their complaint, the borrower should raise issues such as whether their servicer did not inform them of their IDR eligibility, their servicer pressured them to use a forbearance, and/or the number of months that their servicer has said counts towards forgiveness is in dispute.

Any borrowers with loans that, based on the recount, now exceed the number of qualifying years toward forgiveness of 20 or 25 years (as applicable) will have their loans forgiven automatically, even if the borrowers are not currently on an income-driven repayment plan. Those who have made payments after exceeding their number of qualifying years toward forgiveness will receive a refund for any overpayments.

Additionally, sometime in 2023 the Department will begin displaying for the first time each borrower’s progress toward loan forgiveness on studentaid.gov. This will allow borrowers to track their progress, identify potential counting errors, and make better informed decisions about their loans and finances more generally. For more on IDR and other payment plans offered for federal student loans, see NCLC’s Student Loan Law Chapter 3.

New Right #6: Relief for Pending and Certain Denied Borrower Defense Applications

On August 4, 2022, a court granted preliminary approval of a class action settlement in Sweet v. Cardona (N.D. Cal. June 22, 2022) (settlement agreement), previously captioned Sweet v. DeVos, that provides full loan discharges to many people who had borrower defense applications pending as of June 22, 2022, or who had applications denied between December 2019 and October 2020, and provides expedited application decisions to others. The suit also creates a post-settlement class of borrowers who apply for borrower defense between June 22, 2022, and the date of final approval of the settlement.

The class consists of approximately 264,000 students who borrowed a Federal Direct or FFEL loan to pay for a program of higher education, who have asserted a borrower defense to repayment to the Department as of June 22, 2022 that was either still pending on that date or was denied between December 2019 and October 2020, and who are not a class member in Calvillo Manriquez v. DeVos (N.D. Cal.). These class members received more than $7.5 billion in disbursements from the schools listed on their borrower defense applications. The settlement will automatically discharge over $6 billion of these loans.

The class is divided into two groups: The first group consists of the approximately 200,000 borrower defense applicants who borrowed to attend approximately 150 enumerated schools listed in Attachment C to the settlement. This group will automatically get “full settlement relief”—full discharge of their loans, refund of amounts paid, cleaning up of defaults on their credit record, and eligibility for new student loans and grants.

The second group is the rest of the class, approximately 64,000 people who applied for the borrower defense discharge and borrowed to attend schools that are not on the list. These class members will get decisions on their borrower defense applications within rolling deadlines, based on how long their application has been pending. For class members whose applications were denied from December 2019 to October 2020, the denial will be rescinded, and the application will be reconsidered with the new decision deadline based on the date the application was originally submitted. Based on their application date, some borrowers will be entitled to decisions within six months after the “Effective Date” of the settlement, which will be the date of a final judgment and resolution of all appeals to the settlement. Others will be due decisions by later deadlines—12, 18, 24, 30, or 36 months. Reliance on any alleged school misrepresentation will be presumed. Insufficient evidence or a statute of limitations are not grounds for denial.

If the Department misses any of the above deadlines, the borrower will automatically be given a full discharge and other applicable complete relief.  The Department has one year to implement any relief after making a favorable decision for a discharge.  Importantly, after the settlement goes into effect, during the time while class members’ applications are pending and awaiting resolution, no collection is permitted on class members’ loans and interest will not accrue. 

People who submit borrower defense applications between June 22, 2022, and the final approval of the settlement, will be entitled to decisions on their applications within three years from the effective date of the settlement. If the Department fails to provide an adjudication by that deadline, the borrower will be entitled to full relief.

For more on the borrower defense discharge and borrower defense applications, see NCLC’s Student Loan Law § 10.6.

New Right #7: Automatic Loan Cancellation for All Students at  Corinthian, ITT, Westwood, and Marinello

The Department is automatically discharging approximately $10 billion in federal student loans for students who attended four large, multi-campus, for-profit schools, based on widespread predatory misconduct by those schools.  No borrower application is required. 

Eligible borrowers from the four schools are:

• Corinthian Colleges: All 560,000 borrowers with outstanding loans who attended any of the Corinthian campuses from 1995 through its closure in April 2015.
• ITT Technical Institutes: All 208,000 borrowers with outstanding loans who attended any ITT campus from January 1, 2005, through its closure in September 2016.
• Westwood College: All 79,000 borrowers with outstanding loans who attended any of the school’s campuses from between January 1, 2002, and when the school closed in 2016.
• Marinello Schools of Beauty: Approximately 28,000 borrowers with outstanding loans who attended any of the school’s campuses between January 2009 and when Marinello closed in February 2016.

The discharge applies to all outstanding federal student loans, including Direct Loans, commercially held FFEL Loans, and Parent PLUS Loans. Borrowers who already fully paid off their loans before the group relief announcement was made will not be included in this relief. The Department announced that it will also provide refunds for payments already made on outstanding loans, delete adverse credit history associated with the loans, and restore eligibility for further federal student aid.

New Right #8: School Findings Leading to Borrower Defense Loan Discharges

The Department issued “findings” that specific claims from borrowers who attended any of seven multi-campus, for-profit schools are entitled to relief.  Any pending applications alleging similar facts as the findings at these seven schools are being discharged automatically. Others without a pending application can submit a new application alleging similar facts and is likely to receive a discharge. The Department’s website sets out suggestions for information to include in the application.  Others attending other schools or with different claims can still file for a borrower defense discharge, but there will not be the same presumption as to the facts.

The Department so far has made findings as to seven schools, but findings for Corinthian Colleges, ITT Technical Institutes, Westwood, and Marinello Schools of Beauty are now largely irrelevant because, as described above, the Department is automatically discharging loans for all students attending those schools without the need for borrowers to apply.  The other three schools that have been the subject of Department findings are:

• DeVry University had campuses in twenty-six states, as well as an online program that students from all fifty states attended. The Department announced that it granted the claims of 1,800 borrowers who relied upon DeVry’s misrepresentation that 90% of graduates obtained jobs within their field of study within six months of graduating. Other students attending DeVry between 2008 and 2015 and relying upon those advertisements may be eligible for borrower defense relief pursuant to this finding. Loan discharge is not guaranteed.

• The Minnesota School of Business (MSB) had twelve campuses in Minnesota, as well as an online program.  The Department has determined that borrowers are eligible for a discharge if they relied on MSB/Globe University’s misleading claim that its criminal justice programs would qualify graduates to become police, parole, or probation officers in Minnesota.
• The Court Reporting Institute (CRI) has been found by the Department to have made false or misleading verbal and written claims to borrowers about the amount of time needed to complete its court reporting program between August 1998 and the school’s closure in 2006. Notably, just 2% to 6% of students graduated. Borrowers may be eligible for discharge if they relied on these false claims in deciding to enroll.

For more information about these findings and submitting borrower defense applications related to misconduct at these schools, see NCLC’s blog post The Department of Education Has Announced More Borrower Defense Findings; Which Applications Are Getting Granted?

New Right #9:  Successful Borrower Defense Applications Currently Lead to Complete Discharges

In 2019, then-Secretary of Education DeVos adopted a controversial relief formula for approved borrower defense applications, whereby defrauded borrowers often had only a small percentage of their loans discharged. The new Administration has rejected that formula and is currently providing full loan discharges on approved borrower defense claims, including for borrowers with previously approved claims that received less than a full loan discharge. 

Relief on approved borrower defense claims currently includes:

• 100% discharge of a borrower’s outstanding related federal student loans;
• Reimbursement of any amounts paid on the outstanding loans;
• Requests to credit bureaus to remove any related negative credit reporting; and
• Reinstatement of federal student aid eligibility.

New Right #10: Disability Discharges Now Automatic for Borrowers on Social Security Disability

Student loan borrowers who have certain types of “total and permanent” disabilities are eligible for discharge of their student loans, but historically many eligible borrowers have missed out on this relief due to paperwork barriers. In recent years, the government began providing automatic discharges to some disabled borrowers based on a data-matching program with the Department of Veterans Affairs, and now the Department has begun also providing automatic discharge to over 323,000 student loan borrowers based on data matching with the Social Security Administration.  Borrowers will have $5.8 billion in loans automatically discharged unless they opt out after receiving notice of their eligibility for discharge.  See NCLC’s Student Loan Law §§ 10.8.5.3, 10.8.5.4.

Borrowers automatically qualifying for the disability discharge are those eligible for Social Security Disability Insurance (SSDI) and/or Supplemental Security Income (SSI) benefits and whose next scheduled disability review is no earlier than five and no later than seven years. The Department will return payments made after the effective date of the determination by the VA or SSA to borrowers who receive the automatic disability discharge. See 34 C.F.R. §§ 674.61 (Perkins Loans), 682.402 (FFEL), 685.213 (Direct Loans), as promulgated at 86 Fed. Reg. 46,972 (Aug. 23, 2021).

In addition, the Department has ceased asking borrowers for earnings information in the three years after discharge is approved. This “monitoring” process was found to be a major barrier to relief, as many disabled borrowers had their loans reinstated not because their income was too high, but because they missed paperwork requirements. The Department is also moving toward fully eliminating the three-year monitoring period through regulatory amendments.  For more on federal student loan disability discharges, see NCLC’s Student Loan Law § 10.8.

New Right #11:  Relief for Private Student Loans and Navient-Serviced Federal Loans

On January 13, 2022, thirty-nine state attorneys general announced a settlement with Navient, an offshoot of Sallie Mae, one of the nation’s largest student loan servicers, and an originator of private student loans.  The settlement provides relief totaling $1.7 billion on private student loans it originated by Sallie Mae or SLM and almost $100 million in refunds to federal student loans borrowers serviced by Navient. See NCLC’s New Student Loan Discharges, Restitution, and Payment Pause Extension.

Navient is notifying 66,000 borrowers this summer that the remaining balance on their private student loans are being automatically and fully discharged. Navient will also send refunds to these borrowers for any payments they made on eligible loans since June 30, 2021.

The discharge applies to private student loans originated between 2002 and 2014 by Navient’s predecessor, Sallie Mae (SLM Corp.), and the loan must have been charged off by Navient as of June 30, 2021. Navient charges off a loan by the end of the month in which the interest on or principal of that loan becomes 212 days past due or eight billing cycles past due, whichever is earlier. In addition, the loan must meet one of three conditions:

• The borrower at loan origination had a FICO score below 670 and attended a for-profit school or below 640 and attended a non-profit or public school;
• The loan was used to attend one of the for-profit schools included on a list found by clicking on FAQ #6 here; or
• The loan originated under Sallie Mae’s Opportunity or Recourse program.

The settlement excludes loans from discharge where the borrower’s mailing address on file with Navient as of June 30, 2021, was in Alabama, Alaska, Idaho, Montana, New Hampshire, North Dakota, Oklahoma, South Dakota, Texas, Utah, or Wyoming. Also excluded are loans, as of June 30, 2021, that were both charged off prior to June 30, 2014, and are beyond the statute of limitations in the state of the borrowers’ mailing address on file with Navient.

The same settlement requires Navient to place $95 million in a consumer fund to be distributed by an independent oversight committee, with the expectation that about 360,000 federal student loan borrowers will each receive a $260 check. The settlement administrator, Rust Consulting, will automatically distribute checks where a borrower:

• Was serviced by Navient as of January 2017 (even if the borrower is now serviced by Aidvantage) and who had entered repayment on either a Direct or FFEL student loan prior to 2015; 

• Had at least one federal loan that was eligible for income-driven repayment;
• Had at least two years of consecutive verbal or administrative forbearance between October 2009 and January 2017, where at least one of the forbearances was entered through a phone call, and where at least half of the forbearance time was prospective (i.e., not used to bring a past-due loan current).

Excluded from restitution are those residing in Alabama, Alaska, Arkansas, Idaho, Kansas, Michigan, Montana, New Hampshire, North Dakota, Oklahoma, Rhode Island, South Carolina, South Dakota, Texas, Utah, Vermont, West Virginia, and Wyoming. Also excluded are any borrowers enrolled in income-driven repayment prior to the forbearance period.

New Right #12:  Department Eliminates Private Debt Collectors; Contracts with New Servicers

After years of complaints and critiques regarding the use of private collection agencies to collect defaulted federal student loans, the Department announced in October 2021 that is no longer using private collection agencies to collect on Direct Loans and other Department-held loans. (Guaranty agencies holding FFEL loans and schools holding Perkins Loans may still use private collection agencies.)  This change means that if a private collection agency worked on a Department-held loan, it will now be turned over to the Department’s Default Resolution Group (DRG). Borrowers can contact DRG for help managing their defaulted loan or removing it from default online at https://myeddebt.ed.gov/borrower/#/sendemail or by calling 800-621-3115 (TTY 1-877-825-9923). 

Federal student loans not in default have been serviced by companies with a history of massive failings to properly handle borrower accounts. For a discussion of borrower affirmative litigation based on servicer abuses, see NCLC’s Student Loan Law § 14.3. The Department has now or will soon cease contracts with several companies servicing 12 million accounts—Navient, Pennsylvania Higher Education Assistance Agency (PHEAA, also known as Fedloan Servicing), and Granite State. The accounts are being transferred to different servicers, including Aidvantage, a division of Maximus Federal Services.  PHEAA/Fedloan had been responsible for servicing the Public Service Loan Forgiveness (PSLF) program but will no longer do so. MOHELA, the Higher Education Loan Authority for the state of Missouri, is the new servicer for the PSLF program.