New Student Loan Discharges, Restitution, and Payment Pause Extension

This article explains the implications two important developments affecting the rights of private and federal student loan borrowers. On January 13, 2022, a proposed settlement was announced with Navient that will result in an average of $25,000 of debt discharged for each of 66,000 private student loan borrowers. The settlement also provides for $260 payments to 365,000 federal student loan borrowers. In addition, the Department of Education has extended its suspension of federal student loan payments from its February 1 expiration until May 1, 2022, with the balance accruing at zero percent interest.

For more detail on other rights for student loan borrowers, see NCLC’s Student Loan Law and www.studentloanborrowerassistance.org. Rights discussed in those resources include other loan forbearances, loan deferments, other loan discharges, and income-contingent repayment plans.

The Navient Settlement

On January 13, 2022, thirty-nine state attorneys general announced that Navient, one of the nation’s largest student loan servicers and an originator of private student loans, will provide relief totaling approximately $1.85 billion to private and federal student loan borrowers and to the state attorneys general. The settlement will resolve allegations of Navient’s widespread unfair and deceptive federal student loan servicing practices and abuses in its origination of predatory private student loans.

The attorneys general alleged that Navient originated predatory subprime private loans to students attending for-profit schools and colleges with low graduation rates, even though it knew that a very high percentage of those students would be unable to repay the loans. Navient allegedly made these risky subprime loans as an inducement to get schools to use Navient as a preferred lender for highly profitable federal and “prime” private loans.

For more about private student loan abuses and borrower defenses to their repayment, see NCLC’s Student Loan Law Ch. 12. For a discussion of borrower affirmative litigation against private student loan lenders, see NCLC’s Student Loan Law § 14.5.

The attorneys general also alleged that Navient represented to federal student loan borrowers that it would help them find their best repayment options, but instead of helping these borrowers, Navient steered them into costly long-term forbearances and failed to counsel them about the benefits of more affordable income-driven repayment plans.

For more about servicing abuses involving federal student loans, see NCLC’s Student Loan Law Ch. 5. For a discussion of private affirmative litigation for Direct Loan servicing abuses, see NCLC’s Student Loan Law § 14.3.

In addition to discharging the private student loans and the restitution to certain federal student loan borrowers, the settlement requires Navient to notify borrowers about a new right that temporarily offers qualifying public service workers the chance to have previously nonqualifying repayment periods counted toward loan forgiveness—if they consolidate into the Direct Loan Program and file employment certifications by October 31, 2022.

The settlement also includes promised reforms as to Navient conduct, but many of these relate to servicing of federal Direct Loans, and on October 20, 2021, the Department of Education announced the transfer of Navient’s contract to service Direct Loan borrowers to Aidvantage, a division of Maximus Federal Services. Navient, though, will continue to service FFEL and private student loans and will conduct reforms relating to these loans as well.

Navient is an offshoot of Sallie Mae. Congress created The Student Loan Marketing Association (Sallie Mae) as a government sponsored entity to assist in the federal student loan program. In 2004, Sallie Mae converted into a private sector company, SLM Corporation, and in 2014 it split into two entities—Navient and Sallie Mae Bank.

Massive Discharge of Certain Private Student Loans

Under the settlement, Navient will discharge the remaining balance on more than 66,000 private Sallie Mae or SLM student loans. It will cancel at least $1.71 billion or an average of about $25,000 per borrower. Eligible borrowers need not take any action, but instead Navient will notify qualifying borrowers by July 2022, that their loans are being fully discharged. Navient will also send refunds to these borrowers for any payments they made since June 30, 2021, on eligible loans.

To qualify for this discharge, a private student loan must have been originated between 2002 and 2014 by Navient’s predecessor, Sallie Mae (SLM Corp.), and 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. Information on the status of a private student loan may be available from the loan’s servicer or by reviewing the borrower’s credit report.

In addition to the above eligibility requirements, 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 for Navient to sue on that loan.

Practice Tips for Sallie Mae Private Loan Borrowers

This settlement has significant implications for Sallie Mae or SLM private student loan borrowers. Only certain borrowers with Sallie Mae private student loans are eligible for the discharge. Those not eligible must understand that this settlement will offer no benefit to them.

Those eligible, on the other hand, should not make any further payments, in response to Navient, collection agency, or debt buyer collection contacts or collection lawsuits. If there is already a court judgment regarding the loan, Navient’s settlement with the attorneys general should be a basis to seek an end to a wage garnishment or a bank account freeze. While Navient should eventually refund to the borrower any payments so made, borrowers will also want to avoid the loss of the use of this money for a good portion of 2022, assuming they even receive their refund.

After July 2022, if eligible borrowers find their credit reports are still indicating the Sallie Mae private loan as due, they can dispute the debt with the consumer reporting agency. The agency will ask Navient to reinvestigate, and Navient should then report back that the debt is no longer due, resulting in its removal from the borrower’s credit report.

Navient agreed to discharge at least $1.71 billion in private loans, but Navient appears to be responsible for determining which loans are discharged. Borrowers should consider following up with Navient where a seemingly eligible loan is denied a discharge. For example, expiration of the statute of limitations is a remarkably complex determination involving issues as to which state’s law applies and which limitations period in the applicable state applies. Various actions by the borrower may revive or suspend the running of the limitations period. See NCLC’s Student Loan Law § 12.8.3; NCLC’s Collection Actions § 3.7.

Where Navient determines a borrower is eligible for discharge but for the running of the statute of limitations, the borrower should consider seeking from Navient written confirmation of the fact that the limitations period has expired. Based on that, Navient should agree not to collect on the loan, not to sue on the loan, and not to sell the loan to a debt buyer. The borrower does not want to lose the discharge because of Navient’s statute of limitations determination, and then face additional collections.

When Navient determines a loan is not eligible for discharge because of the running of the limitations period, Navient also must determine that the loan was charged off prior to June 30, 2014. If that is the case, then the debt should no longer be on the borrower’s credit report (being over seven years old and obsolete). See NCLC’s Fair Credit Reporting Ch. 5. Disputing the debt with a consumer reporting agency should result in its removal from the borrower’s credit report even though the loan does not qualify under the attorney general’s settlement for a discharge.

$260 Payments to 360,000 Federal Student Loan Borrowers

The 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. Any uncashed checks will be returned to the attorney general of the state of residence of the borrower that did not cash the check.

The settlement administrator, Rust Consulting, will automatically distribute $260 checks to all eligible federal student loan borrowers, making its own determination as to whether a borrower qualifies. The settlement administrator will first mail a postcard this Spring to qualifying borrowers, but there is no requirement that a borrower respond or apply for the $260 payment. Checks are expected to be sent out by mail in mid 2022. To ensure receipt of the check, a borrower can update their contact information in their studentaid.gov account or create an account if they do not already have one.

Borrowers are eligible for the $260 restitution payment if they were:

• 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).

Borrowers can determine if Navient is their federal loan servicer by logging into their studentaid.gov account, going to the account dashboard, and scrolling down to the section titled “My Loan Servicers.” Alternatively, they can call the Federal Student Aid Information Center (FSAIC) at 1-800-433-3243.

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.

Extension to May 1, 2022, of Federal Student Loan Forbearance

On December 22, 2021, President Biden directed the U.S. Department of Education to extend the coronavirus-related payment suspension and 0% interest rate on certain federal student loans for an additional ninety days. The payment suspension was due to expire at the end of January, but it is now extended to May 1, 2022.

What Borrowers Need to Know about the Extension

The Department of Education’s webpage about coronavirus relief states that the terms of the relief will remain the same as the 2020 and 2021 payment extensions. This means the extension will continue to include the following terms:

• Covered loans: Relief will continue to apply only to Direct Loans and to any other federal student loans that are currently held by the Department of Education. This means that borrowers with commercially held Federal Family Education Loans (FFEL) that are not in default and school-held Perkins Loans will not get relief on those loans under this action. (See info here on how to figure out whether your loans are owned by the Department.)
• Payment suspension: For covered loans, monthly payments will be automatically suspended through at least May 1, 2022. This means that borrowers will not be required to make payments, though borrowers who want to make payments during the suspension may do so.
• Temporary 0% interest rate: For covered loans, the temporary 0% interest rate will continue through at least May 1, 2022. This means interest is not being charged on covered loans during the suspension and borrowers’ balances should not grow during this time.
• Time in suspension counts toward IDR and PSLF forgiveness: For borrowers enrolled in income-driven repayment plans (IDR), the months spent in the payment pause will count toward IDR loan forgiveness. The same goes for borrowers working toward Public Service Loan Forgiveness (PSLF): borrowers who otherwise meet PSLF requirements during the suspension will receive credit toward the forgiveness clock during the period of suspension.
• Extension on time to recertify: For borrowers enrolled in IDR, previous extensions of the payment suspension included pushing out the annual recertification deadline to at least the end of the suspension. This extension should work the same way: according to the Department’s website, the earliest borrowers might be required to recertify is August 2022. Borrowers in IDR should continue to check with their loan servicer and the Department of Education’s website to determine when it will be time to recertify their income. Borrowers can recertify at any time, so those who have experienced a decrease in income may recertify sooner to ensure that they have an affordable repayment amount when payments resume.
• Suspension of collection on defaulted loans: For covered loans that are in default, no collection activities should occur through at least May 1, 2022. This means there should be no collection calls, no wage garnishment, and no money taken out of borrowers’ tax refunds or Social Security benefits to collect on defaulted covered loans. Borrowers in default should consider filing their taxes early in 2022 to improve the chances that their tax refunds will be paid out before May 1—and before any collection and refund seizures may occur.
• Time in suspension counts toward rehabilitation: For borrowers who enter into a rehabilitation agreement to get their covered loans out of default, suspended payments after the date of the agreement will count toward the required nine payments needed to rehabilitate a loan. Any borrowers who have not accrued nine months of qualifying suspended or required payments by the end of the payment suspension will have to begin making payments after the payment suspension ends to complete rehabilitation.

The Department of Education’s webpage about coronavirus relief contains more details, including a detailed FAQ for borrowers.

Tips on Making the Most from the New Forbearance

• Borrowers with FFEL and Perkins loans might consider consolidating into the Direct Loan program to be eligible for the payment suspension and interest pause, and other benefits afforded to Direct loan borrowers (e.g., lower IDR payments under the Revised Pay As You Earn plan). But there are serious potential downsides to consolidation, and some borrowers are not eligible to consolidate, so this is not a good idea or even a possibility for all borrowers. Borrowers can learn more about the pros, cons, and eligibility restrictions for consolidation here. 
• Borrowers who are not currently in an income-driven repayment (IDR) plan should consider whether it makes sense to switch into an IDR plan so that the time in suspension counts towards eventual IDR loan forgiveness. Borrowers who do not want to switch to IDR might consider whether to make voluntary payments on their student loans now, even though payments are not required so that they can keep making progress toward paying off their loan and becoming student debt-free.
• Borrowers with loans in default should consider filing their taxes early in 2022 to improve their chances that any tax refunds they are entitled to will be paid before the payment pause ends—and thus before the Department may resume seizing tax refunds to collect on defaulted loans. Borrowers may also consider whether this is a good time to get out of default. More information about how to get out of default is available here.