Student loan giant Navient and borrowers settle lawsuit over troubled forgiveness program

Student loan giant Navient (NAVI) promised to revamp a loan forgiveness program designed for public servants after settling a 2018 class action lawsuit from student loan borrowers.

The preliminary settlement — still subject to final approval by the court — requires Navient to “enhance its internal resources, maintain regular training and monitoring for call center representatives, update forms that are sent to borrowers and update its website.”

Read more: How to repay student loans: The full breakdown

Part of the settlement involves Navient providing $1.75 million to a nonprofit organization that will provide education and student loan counseling to public service workers. The 10 plaintiffs, all student borrowers, will receive $15,000 each.

“This exceptional agreement is a big step forward that will help millions of borrowers get the relief they need—and were promised by the federal government—by enhancing the resources available to them through their loan servicer,” Randi Weingarten, president of the American Federation of Teachers, which backed the plaintiffs, said in a press release.

California State Fullerton Human Communication Studies dept. head Jon Bruschke with a social distance handshake with graduate Kaitlin Buxton in Long Beach, California, on Saturday, May 23, 2020. (Photo: Keith Birmingham/MediaNews Group/Pasadena Star-News via Getty Images)

It was about the most confusing thing I’ve ever seen’

Congress created the Public Service Loan Forgiveness Program (PSLF) in 2007 to help various kinds of public service workers erase their student debt after 10 years of loan payments.

Management of the program is widely considered to be a failure: More than 98% of applications from teachers, firefighters, police, and other public servants are rejected. Several lawsuits have arisen over the last decade.

Issues listed by the plaintiffs in the case settled Friday included: Not informing them of the forgiveness program, which requires 120 on-time payments; not leading the borrowers to the “best possible payment plan” to qualify for the forgiveness; and harming public servants by “routinely providing false information” to the borrowers.

Navient’s actions, the lawsuit alleged, led to them be denied loan forgiveness. Judge Denise Cote dismissed most of the plaintiffs’ claims in July 2019, noting that many of the claims were too vague or lacked documentation. The settlement brings the lawsuit to a close.

(Graphic: David Foster)

Aside from this now-settled lawsuit, other borrowers are directing their PSLF frustrations toward Education Secretary Betsy DeVos.

As of April this year (most recent data available), approximately 150,000 borrowers applied for PSLF, the original program. Roughly 1.7% of applications were approved. The average discharged amount was $66,000.

Education Department officials contend that Congress designed the rules to be too restrictive.

Many applications were thrown out over technicalities: The borrower had not made enough qualifying monthly payments — all 120 of them — or had missing information in their paperwork. Or their loans weren’t actually eligible in the first place.

“It was about the most confusing thing I’ve ever seen in my life, and I’m just being honest,” Ami Sandler, a California-based teacher, told Yahoo Finance in a previous interview. “It was the most tedious, most complicated thing I’ve ever seen.” 

In June, California Attorney General Xavier Becerra filed a lawsuit targeting the Temporary Expanded Public Service Loan Forgiveness (TEPSLF) program, which was created as a temporary fix to the PSLF program but also saw a high denial rate. Becerra deemed the temporary program “virtually inaccessible” given its “convoluted application process.”

Navient Corporation Indianapolis Location. (Getty)

Terms of the agreement

In particular, Navient has agreed to:

  • Enhance internal resources for call center representatives, including updating job aids and call flow procedures, implementing new procedures requiring customer service representatives to listen for keywords or phrases indicating PSLF eligibility, and asking leading questions regarding employment by qualifying employers. 

  • Update forms that are sent to borrowers when they consent to loan forbearance such that the forms include a reminder that there may be loan forgiveness options available and to direct borrowers to the Federal Student Aid website and FedLoan Servicing to learn more about PSLF. 

  • Design new electronic forms that can be sent via e-mail to borrowers who express interest in PSLF.  

  • Update its website and chat communications with borrowers, including by maintaining direct links to access the National Student Loan Data System (which contains authoritative information from the federal government concerning the PSLF program) on Navient’s website and ensuring that webchat conversations include leading questions asked of borrowers who possibly may be PSLF-eligible. 

  • Maintain training and monitoring of call center representatives by providing education on the new practice enhancements and regularly monitoring sample calls to ensure compliance with new policies and procedures.

“The agreement is a good illustration of how borrowers and servicers can work together for the benefit of both parties,” AFT’s Weingarten stated. “It acknowledges that PSLF is a vital program for many graduates who forgo larger salaries in the corporate sector to serve the public instead.” 

Aarthi Swaminathan is a reporter for Yahoo Finance, covering consumer finance and education. Aarthi can be reached at aarthi@yahoofinance.com. Follow her on Twitter at @aarthiswami.

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