A piece of big news covered by The New York Times provides one more reason not to trust student loan servicers to advise debtors of the best New York bankruptcy alternative for repaying their loans. The Consumer Financial Protection Bureau (CFPB) sued Navient, an offshoot of student loan giant Sallie Mae, for misleading debtors about their repayment options as well as other misdeeds. Navient’s actions may have cost student loan borrowers billions of dollars in unneeded payments and collections. Attorneys general from Michigan and Washington are also joining in the suit.
The lawsuit alleges a combination of misinformation, mismanagement, and deception of borrowers. For one, Navient misapplied borrowers’ payments according to their preferences. For example, Navient might not have directed borrowers’ payments to their highest interest loans if that was their wish. Only borrowers who examined their accounts carefully would have caught Navient’s mistakes.
Navient also declined to inform borrowers about the federal government’s income-driven repayment plans, creating needless costs, particularly for borrowers whose loans the federal government partially subsidized. Instead, the CFPB alleges that Navient redirected borrowers to forbearance, which is a reprieve from payments even though it doesn’t stop interest from accruing. Perhaps borrowers paid up to $4 billion in avoidable interest charges.
The CFPB also claims Navient inadequately informed borrowers about the need to send documentation to keep them enrolled in income-driven repayment plans. Staying on an income-driven repayment plan isn’t easy. The consequences of failing to meet the eligibility requirements for these plans can be quite severe for borrowers: much higher monthly payments, a heavy accrued interest burden, and loss of progress toward loan forgiveness.
Navient also apparently failed debtors who were making the prepayments it required to release their loans’ co-signers. It told these debtors that they did not need to make additional payments if they had already prepaid, but instead it reset their payment counters, eliminating all progress they had made.
Finally, borrowers who were able to administratively discharge their student loans because of total and permanent disabilities, including veterans, suffered hits to their credit scores because Navient wrongly reported their discharges to the credit agencies.
The amount at stake in the lawsuit is quite high, but it appears that many of Navient’s actions were due as much to poor management as guile. However, the lawsuit is a reminder to student debtors, particularly those with federal loans that income-driven repayment options are out there, but they must remain vigilant to ensure their eligibility. Debtors must also be careful to meet the requirements their lenders demand to release co-signers, who are often their parents.
The CFPB press release on the lawsuit is here, and the New York Times reporting on it is here.
If you are struggling to repay your student loans, then obviously looking into your eligibility for an income-driven repayment plan is a necessary first step. If that isn’t enough, then talking to an experienced New York bankruptcy lawyer can help because a chapter 7 bankruptcy can discharge non-student loan debts and free up income for student loans. Chapter 13 can help student loan debtors as well.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.