HARRISBURG– Today the U.S. Department of Education canceled $39 billion in federal student loans for 804,000 borrowers. This monumental change resulted from the Biden administration correcting errors in the way federal Income-Driven Repayment (IDR) plans counted payments toward forgiveness time for borrowers or borrowers who were directed into the wrong repayment options.
“This relief is significant for these student loan borrowers – and their families – who have been struggling for years to pay back their loans,” said Attorney General Michelle Henry. “In 2017, we sued Navient for steering student borrowers into postponing payments instead of helping them enroll in Income-Driven Repayment plans that would have enabled them to qualify for forgiveness. I applaud the Department of Education and Secretary Cardona for helping these borrowers receive the loan forgiveness that they should have been eligible for if Navient had done its job properly.”
The Office of Attorney General filed a lawsuit in 2017 that alleged that Navient began steering borrowers into forbearances instead of IDR in 2009. A forbearance or deferment allows a borrower to take a temporary pause on their payments. Instead of putting borrowers into forbearances, Navient should have been helping the borrowers apply for income-driven repayment plans during this time. From 2010 to 2015 alone, Navient’s conduct added up to $4 billion in interest charges to the principal balances of borrowers. Navient did not help borrowers enroll in the payment plans that were best for them, despite representing that it was an expert in the area and would assist borrowers in finding solutions that work for them.
In January 2022, Navient agreed to provide relief totaling $1.85 billion to resolve the claims of Pennsylvania and 38 other state attorneys general. The settlement resulted in more than $100 million in cash payments to borrowers who were victims of forbearance steering, but Navient could not forgive the underlying loans (even though it serviced them) since they were owned by the Department of Education. This is why the action taken today by the Department of Education is so important: it provides billions of dollars in relief to borrowers who would have earned the forgiveness if Navient had not misled them.
“The nation’s crushing student loan burden has reduced many Americans’ ability to save and spend as they see fit,” continued AG Henry. “It also harms the Commonwealth’s larger economy because it diminishes these consumers’ purchasing power, forcing them to delay buying a home, creating a business, or starting a family. In short, an entire generation is being held back by the shackles of student loan debt.”
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