Class-Action Case to Discharge Navient Private Student Loans Takes a Big Step Forward

Back in October of 2017, I published a post about a nationwide class-action suit against Navient.

The case targeted an issue I first wrote about in 2013 regarding the eligibility of certain private student loans to be discharged in bankruptcy.

Attorney Austin Smith and others have been participating in this case.

As you can imagine, Navient is pushing hard to persuade the Bankruptcy Court hearing this case to drop it and move on. However, on March 26, 2018, United States Bankruptcy Judge David Jones did the opposite when he found merits in the arguments.

Judge Jones ruled borrowers may indeed have the legal right to cancel certain private student loans and he is allowing this case to move forward as an expanding class-action suit.

Court decisions move slowly and this particular issue is no different. It has taken years for this effort to move forward to a point where it is being taken more seriously.

At the heart of the issue are private student loans that were extended to students of schools not accredited by to comply with the definitions of recognized student loans protected under the bankruptcy code.

I’ve seen buckets full of these loans to lawyers in bar preparation classes, technical schools, flight schools, and even drug treatment facilities. You can see this post for a long list of non-qualified education loan types.

The primary plaintiff in the case against Navient is Evan Croker. Crocker took out four loans with Navient totaling $117,000. Crocker is now an attorney with Lone Star Legal Aid according to his Linkedin profile.

The other initial plaintiff, Michael Shabazi obtained a Sallie Mae career training loan in 2002 for tuition expenses at an unaccredited technical school. Mr. Shabazi filed a voluntary chapter 7 case in the Eastern District of Virginia on September 20, 2011. Mr. Shabazi received his discharge on December 27, 2011.

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Following the discharge of their mutual Navient debts, both were pursued by Navient for repayment. In the legal action against Navient it is stated, “the plaintiffs allege that the defendants have been continuously engaged in a decade-long scheme to subvert the Bankruptcy Code by intentionally disregarding the injunctive provisions of 11 U.S.C. § 524(a).”

The position put forward by the plaintiffs and their legal representatives is the types of private student loans they had were not protected from bankruptcy and were discharged when they received their individual bankruptcy discharges.

If Navient loses this case they could be on the hook for discharging a lot of private student loans and damages for pursuing consumers who filed bankruptcy and had these types of loans.

Judge Jones noted that different courts have decided different ways on this issue. But he also said, “The Court finds the answer to the question of how many courts go in one direction or the other to be unpersuasive whatever the outcome.”

You can read the full opinion of Judge Jones, here.

If you read the full opinion you will find the Judge is stuck on the same issue that creates the dischareability of these loans. “The Court is further persuaded by the use of the word “as” as opposed to “for.” The use of the word “as” denotes “in the character or under the name of.” BLACK’S LAW DICTIONARY 113 (6th ed. 1990)2. To the contrary, “for” denotes “in consideration for . . . in exchange for.” BLACK’S LAW DICTIONARY. The Court concludes that § 523(a)(8)(A)(ii) created a new category of nondischargeable debts specifically tailored to address a perceived need. That need did not include all loans that were in some way used by a debtor for education. If such were the case, would not a loan for a car used by a commuter student to travel to and from school every day be nondischargeable under § 523(a)(8)(A)(ii)? The answer is obvious.”

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Recognizing what a big issue this is going to be, Judge Jones immediately requested an appeal of his decision. So now we wait.

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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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