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The lawsuit filed by Pennsylvania attorney general Josh Shapiro against Navient, the student loan servicer, could spell change for countless borrowers. According to this lawsuit and lawsuits filed in other states, Navient engages in predatory lending tactics designed to keep borrowers in debt for longer, and steers them away from more advantageous repayment options.
The federal lawsuit seeks a permanent injunction, as well as disgorgement of profits, restitution, other damages, and reformation of borrower agreements and repayment plans. And while the case may only be in Pennsylvania's federal court, a positive result here could change things across the country.
Income Based Profit Margins
One of the bigger allegations being made in the case involves advising graduated borrowers to defer payment of loans via forbearance, rather than enrolling in income-based repayment plans. Particularly for those employed in positions that might qualify for loan forgiveness, entering forbearance rather than an income based plan could actually mean having to pay off more interest. Significantly, for recent grads just entering the workforce, taking forbearance is not as beneficial as the lower payments of an income based repayment plan during the early part of one's career.
In addition to misadvising borrowers, it is alleged that many of the student loans provided were too risky, subprime loans, and Navient should have known better. In short, Navient provided high risk loans to students attending schools with low graduation rates, knowing full well that many students would default after not graduating, and thus saddling them with non-dischargeable, and ever increasing, student loan debt.
For those with student loans serviced by Navient, it may not be a bad time to review your history. If you can recall being steered into forbearance when you had income, or if Navient pursued you for non-payment or default, you'll definitely want to keep an eye on this case, as it may provide some avenue for debt relief.