Student loan servicing giant Navient is currently facing a class-action lawsuit from its borrowers.
Due to mounting pressure from plaintiffs and legislators, the lender recently agreed to cease some of its aggressive collection tactics on the debt of a portion of borrowers who filed for bankruptcy. This provides temporary relief for potentially thousands of Navient borrowers.
What’s more, it could signal a way for borrowers to discharge some student debt in bankruptcy. Here’s how new Navient lawsuit developments could change how bankruptcy and student loans work.
Navient lawsuit developments
In the lawsuit, plaintiffs claim that Navient attempted to collect on loans that had been discharged in bankruptcy. They say the company hounded borrowers, even calling their employers and relatives.
In response, Navient voluntarily agreed to halt collection activities for those who have defaulted on their student loans. The company will likely continue to send bill statements but will stop making daily phone calls to borrowers, their families, and their workplaces. The halt will last at least through the end of the lawsuit court proceedings.
This development is the latest in a string of problems Navient is presently facing. In January, the Consumer Financial Protection Bureau also filed a lawsuit against Navient. Additionally, Attorney Generals in Illinois and Washington both made claims that Navient engaged in predatory lending practices.
Can you file bankruptcy on student loans?
In the 1970s, Congress made changes to the bankruptcy process, making it much more difficult to discharge student loan debt in bankruptcy.
In fact, if a debt falls into the falling categories then it is not eligible to be discharged in bankruptcy:
- Federal student loans
- School-offered student loans
- Qualified education loans from private lenders
Currently, the only way to discharge student loans in bankruptcy is to claim undue hardship.
Undue hardship exists if you cannot afford your loans today and if there is no reason to believe you would be able to in the future. Bankruptcy judges consider your income, as well as your hypothetical earning potential when deciding whether undue hardship exists.
Navient and bankruptcy laws
Lawyers and legislators are now in the midst of challenging student loan bankruptcy laws.
In the past, lawyers have focused on the undue hardship portion of the law concerning student loans. Now they’re focusing on the categories a student loan debt could potentially fall under in order to be eligible for bankruptcy.
For example, student loans that Navient borrowers use for the following are currently not listed as ineligible for discharge under bankruptcy:
- Non-accredited programs
- K-12 education
- Medical school overseas are not part of the categories listed above.
However, Navient collected on them anyway.
Essentially, the plaintiff attorneys in the Navient lawsuit say the company collected on debts that do not fall into the typically ineligible categories of loans. And since they do not fit into these categories, the plaintiff attorneys contend that the loans are eligible for bankruptcy.
By challenging the type of student loans eligible for bankruptcy, it could bring relief to thousands of borrowers.
That’s why this Navient lawsuit could be a groundbreaking change for the student loan industry. If successful, attorneys say the lawsuit would impact approximately 16,000 Navient borrowers.
Think twice before declaring bankruptcy
However, bankruptcy is not a ticket to financial freedom. It’s a serious option that should only be a last resort.
Filing for bankruptcy is also a tedious and expensive process. Consumers need to come up with $1,500 on average to cover lawyer fees and the court paperwork.
And depending on what kind of bankruptcy you declare, you could damage your credit score for up to 10 years. That can make it extremely difficult to get any form of new credit; if you are approved, it will likely be at the highest interest rate possible.
Bankruptcy does not eliminate all forms of debt, either. Fines or penalties you owe to the government cannot be discharged in most circumstances. And if you owe child support or alimony, you’ll still owe those costs after bankruptcy.
Essentially, bankruptcy is only a good option when there’s no other choice. If your debt has grown to the point that there is no way to get it back under control, bankruptcy might be the answer.
While bankruptcy can be a relief for some borrowers who have experienced significant hardship, it’s not for everyone. Exhaust all of your other options before pursuing this route.
For more information about the Navient lawsuit, check out this article on four ways Navient borrowers can protect themselves.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 6.97% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.23% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
Savings example: average savings calculated based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were disclosed. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
Application detail: 5 minutes indicates typical time it takes to complete application with applicant information readily available. It does not include time taken to provide underwriting decision or funding of the loan.
Instant rates mean a delivery of personalized rates for those individuals who provide sufficient information to return a rate. For instant rates a soft credit pull will be conducted, which will not affect your credit score. To proceed with an application, a hard credit pull will be required, which may affect your credit score.
Total savings calculated by aggregating individual average savings across total borrower population from 9/2013 to 12/2017. Individual average savings calculation based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were provided. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate||Visit SoFi|
|2.47% – 6.23%1||Undergrad & Graduate||Visit Earnest|
|2.47% – 8.03%4||Undergrad & Graduate||Visit Lendkey|
|2.95% – 6.37%2||Undergrad & Graduate||Visit Laurel Road|
|2.48% – 6.25%5||Undergrad & Graduate||Visit CommonBond|
|2.72% – 8.32%6||Undergrad & Graduate||Visit Citizens|