In a suit filed in 2016 by Evan Haas and Michael Shabazi against Navient Solutions and Navient Credit Finance Corporation an interesting position was taken that myself and others have previously presented. While many assume incorrectly all student loans are protected from discharge in bankruptcy, that does not appear to be a factual statement. If a loan was not protected and discharged in bankruptcy then the continued collection of those loans would create a massive liability for Navient, refunds for consumers, and possibly legal awards and attorney fees.
The suit was filed by a number of attorneys and firms. One of those attorneys is our friend Austin Smith with Smith Law Group. Full information on all the attorneys involved will be below.
I’ve written about the underlying problems with many of the Navient, and other, private student loans. The suit filed in this case sums it up best by saying, “For the last ten years, Defendants have been engaged in a massive effort to defraud student debtors and subvert the orderly working of the bankruptcy courts. Specifically, Defendants have been originating and servicing dischargeable consumer loans and disguising them as non-dischargeable student loans. Defendants have done this in order to discourage debtors from seeking their constitutional right to relief under Title 11 and to allow creditors to continue to collect on discharged loans after a debtor’s bankruptcy. In order to effectuate this illegality, Defendants have appropriated a legal presumption for a class of debt that they know is not entitled to that presumption, thereby using the authority of the bankruptcy courts to cloak their fraud in the color of law and escape detection. Defendants are willfully and maliciously engaged in a pattern and practice targeted at some of society’s most vulnerable persons that they know defiles the proper workings of the bankruptcy process. Plaintiffs bring this action to enforce their rights and the rights of those similarly situated under law.”
From an open eyed look at the facts, Navient has known some of their private student loans were not protected in bankruptcy, even though they argued otherwise. In some written filings Navient told investors the loans were not Title IV loans and thus not protected.
The suit is primary about student loans that are non-qualified education loans and the suit seeks to have the following types of loans consumers included in a previous bankruptcy, eliminated private educational loans made to students attending non-Title IV accredited schools. If you’d like to search for a specific school, or verify whether a school is Title IV, you can do that here.
The suit sheds some additional light on these disclosures, “During the same time, student lenders were securitizing these debts for sale on the secondary market. Lenders were rightfully concerned that if they represented to investors that all private student loans were non-dischargeable in bankruptcy, sophisticated investors would easily enough discover the misrepresentation (based on a plain reading of the statute), and issuers would be liable for securities violations. Major lenders and underwriters thereafter included in student loan asset-backed securities’ prospectuses language warning investors that, pursuant to section 523(a)(8), only private loans made for qualified expenses were excepted from discharge.12 In addition, Navient has been warning shareholders in investor presentations that Career Training loans—i.e., one form of non-qualified loans made to students at unaccredited colleges and high schools — are dischargeable in bankruptcy.”
The loans targeted in this suit are non-qualified educational loans. And Navient wasn’t the only lender to make these kinds of loans.
“Non-qualified education loans” include:
- Private loans that were not made for “qualified educational expenses,” meaning that the funds were not used for a traditional four-year college. These loans include career training loans and loans made to students for some post-graduate programs such as:
- Airline Training School Student Loans
- Flight Schools Student Loans
- Tractor Trailer School Student Loans
- Culinary School Loans
- Bar Exam Loans
- Study Abroad Loans
- Caribbean/Foreign Medical School Loans
- Cosmetology School Loans
- Paralegal School Loans
- Heavy Equipment Operation School Loans
- Tutoring Loans
- K-12 Student Loans
- Medical Billing School Loans
- Medical School Residency Loans
- Dental School Residency Loans
- Art School Loans
- Fitness School Loans
- Holistic Health School Loans
- Mechanic School Loans
This current class action case allows people to joining the suit “who filed for bankruptcy protection since 2005 in the various Judicial Districts of the United States with educational loans originated and/or serviced by Defendants or their predecessors that do not meet the definition of a qualified education loan in IRC 221(d) and 11 U.S.C. § 523(a)(8) and were subject to attempts to induce payment on those loans after discharge.”
This lawsuit further alleges that debtors who have already repaid debts to Navient which should have been discharged in their bankruptcies may be entitled to a refund of all or some of the money they have repaid Navient since their bankruptcy discharges.
If you think you may be covered by the class action lawsuit you should contact one of the firms below and find out how you can participate.
Do You Have a Question You'd Like Help With? Contact Debt Coach Damon Day. Click here to reach Damon.
You can read the suit filed here.
Attorneys Pursuing This Class Action Case on Behalf of Consumers
Jason W. Burge (admitted pro hac vice)
Kathryn J. Johnson (admitted pro hac vice)
FISHMAN HAYGOOD L.L.P.
201 St. Charles Avenue, 46th Floor
New Orleans, Louisiana 70170
Telephone: (504) 586-5252
Facsimile: (504) 586-5250
jb****@************od.com
kj******@************od.com
Austin Smith (admitted pro hac vice)
SMITH LAW GROUP
3 Mitchell Place
New York, New York 10017
Telephone: (917) 992-2121
au****@*************up.com
Catherine E. Lasky (admitted pro hac vice)
Kerry Murphy (admitted pro hac vice)
JONES, SWANSON, HUDDELL & GARRISON, L.L.C.
601 Poydras Street, Suite 2655
New Orleans, Louisiana 70130
Telephone: (504) 523-2500
Facsimile: (504) 523-2508
Kl****@**********on.com
Km*****@**********on.com
Joshua B. Kons (admitted pro hac vice)
LAW OFFICES OF JOSHUA B. KONS, LLC
939 West North Avenue, Suite 750
Chicago, Illinois 60642
Telephone: 312-757-2272
jo********@*****aw.com
Mark Douglas Myers
ROSS, BANKS, MAY, CRON & CAVIN, P.C.
7700 San Felipe, Suite 550
Houston, Texas 77063
Telephone: 713-626-1700
Facsimile: 712-623-6014
mm****@*******ks.com
Adam Corral
Susan Tran
Brendon Singh
CORRAL TRAN SINGH, LLP
440 Louisiana St, Suite 2450
Houston, Texas 77002
Telephone: (832) 975-7300
Facsimile: (832) 975-7301
ad*********@**********ys.com
Does this mean that you have to have filed bankruptcy and the private Navient loan was not discharged? I have private loans from Navient that I’ve been paying on since 2004 that were for bar study courses and bar exam fees.
Those loans have been demonstrated to not be protected in bankruptcy and should have been discharged. You might want to talk to a lawyer like Austin Smith https://www.acsmithlawgroup.com/ or Josh Cohen at https://thestudentloanlawyer.com/ about this situation. There have certainly been a number of cases reopened with Adversary Hearings to deal with these issues.
I have not filed bankruptcy, nor do I want to. I don’t even think I could file bankruptcy. I’m already 55 years old and owe all this student loan debt. My law degree didn’t help me. I couldn’t pass the bar exam so I never got to practice law. I do work for the Dept of Corrections in my State and am enrolled in the PSLF program, but I have about 7 more years to pay. My student loan payment is my highest payment, second only to my mortgage.
Esther,
The issue is not if you need to file bankruptcy, it is that it is likely the loans for bar study courses and exam fees were most likely already discharged in your original bankruptcy since they are not protected loans. In that case, you are paying on loans that you don’t need to. Additionally, PSLF will not discharge private student loans for the bar exam prep or bar fees since they would be private loans.
Thanks Steve, I understand. Since I have never filed bankruptcy, it wouldn’t apply to me.
I have been in an administrative forbearance since 5 2016 because the school I attended Westwood is permanently closed for reasons it states when you google it they were deceptive in accreditation and the amount I am paying 60k for an associates degree that is worth 0. I filed with Colorado consumer and in Ohio because Navient will not discharge they rather keep me on forbearance to add up interest!! I was supposed to have this done according to the Dept of Education by July 25,2016. I am disgusted at the system they work in, and have been paying Private loans still since Mar 2011 I Don’t know where to turn with this!!