Millions of People May Get Student Debt Canceled After Company Moves Loans

Millions of Americans could potentially get their student debt canceled after Massachusetts Senator Elizabeth Warren called on Navient to cancel “decades-old predatory private student loans” under a Federal Trade Commission (FTC) protection law.

Navient said this year it would move its private and commercial loans in the Federal Family Education loan program to MOHELA, a major federal student loan servicer. That means 2.7 million borrowers will see their loans move to a new servicer, and some Democratic members of Congress are hoping that a significant chunk of those get wiped out.

That’s because the Department of Education (DOE) previously canceled federal student loans for borrowers under the FTC’s borrower defense to repayment rule, which allows borrowers to clear debt if they attended a specific list of schools deemed fraudulent by the DOE.

However, because Navient’s private loans weren’t covered under the law, many borrowers who attended the “fraudulent” schools never had their debt erased.

In a letter, Warren and eight other Democrats asked Navient to get rid of the student debt under the Holder Rule, which permits borrowers to cancel their debt if the university “fraudulently induced the student to enroll and had some relationship with the lender,” according to the Minnesota Attorney General’s Office.

Navient was found to have had relationships with several for-profit schools, and the servicer ended up reaching a settlement with 39 states for $1.7 billion due to accusations of working with for-profit schools to give students high default-rate loans.

The money went to borrowers who had been in default for seven straight months before June 2021, however, leading many to go without loan forgiveness.

“The concern is if Navient doesn’t deal with these loans before they outsource them to another student loan provider, MOHELA, they’ll continue to plague millions of loan holders’ accounts,” Alex Beene, a financial literacy instructor at the University of Tennessee at Martin, told Newsweek.

Navient currently allows borrowers to apply for relief if they attended one of the for-profit schools, but the Democrats who wrote the letter urged the company to automate the relief process.

“Navient should stop making borrowers apply for relief and instead automatically cancel student debt using information the company already has about whether borrowers attended schools that would entitle them to relief,” they said.

The lawmakers are hoping relief can come for the borrowers before loans are fully sent to MOHELA and requested that Navient CEO David Yowan provide additional information by April 29.

Specifically, they want to know the number of borrowers who went to the for-profit schools, how many have applied for loan forgiveness and how the company incorporates the Holder Rule.

As it prepares for the loan transition, Navient said it would “work toward ensuring a seamless transition in the coming months and providing customers with uninterrupted servicing of their loans.”

Aaron Smith, the co-founder of student loan platform Savi, said the call by Warren and other lawmakers offers private loan borrowers a chance to get their debt cleared while previously there was limited hope due to the type of loan they had.

“Most of the attention in student loan forgiveness has focused on federal student loans, but private loans are also an important part of the puzzle,” Smith told Newsweek. “Traditionally there have been fewer options for borrowers with private student loans to adjust their monthly payments or access loan forgiveness.”

Michael Lux, an attorney and founder of the Student Loan Sherpa, said that even if Warren’s efforts don’t make a dent in their student loan debt, there are options.

“Senator Warren’s efforts to automate forgiveness are commendable, but borrowers should also take action on their own behalf,” Lux told Newsweek. “Navigating repayment is often complicated and frustrating, but there are resources available to help. Ignoring your student debt or hoping for the best is an expensive strategy.”