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Tuition Answer Loans and Potentially Other Private Student Loans Might Not Be Collectible by Navient

Navient has had a loss in a lawsuit regarding Tuition Answer Loans.

United States Bankruptcy Judge Elizabeth Strong has issued a Temporary Restraining Order (TRO) saying “Navient is restrained and enjoined from taking any acts to collect on Tuition Answer Loans held by the Plaintiffs and the Putative Class Members, as the class is described in the Amended Complaint, that exceed the cost of attendance as defined by Internal Revenue Code § 221(d), and that have an outstanding balance subject to collection. In order to permit Navient reasonable and sufficient time to implement compliance measures, Navient shall have sixty days to comply with this direction.” – Source

This may eventually expand to all private student loans as this case proceeds. The Judge says “At the same time, the Court is not persuaded that – at this stage in these proceedings – it is appropriate to extend that relief beyond the Plaintiffs and Putative Class Members as described in the Amended Complaint. That is, the Court concludes that temporary injunctive relief is warranted to direct Navient to cease its collection efforts on Tuition Answer Loans that exceed the cost of attendance from Ms. Youssef and those Putative Class Members whose loans have an outstanding balance, as the class is described in the Amended Complaint. The Court declines the invitation to expand this relief – at this time – to the larger group of those Putative Class Members encompassing student borrowers who entered into other private loans that exceed the cost of attendance, as the class is described in the Class Certification Motion.”

The Case

This case concerned private student loans being discharged in a Chapter 7 bankruptcy filing and Navient ignoring the discharge granted.

As the Court document says, “The Plaintiffs seek this relief on grounds that these private student loans are within the scope of their Chapter 7 bankruptcy discharges, and that Navient has disregarded that fact as it has continued its collection efforts for many years, including for the five years that this action has been pending.”

The private loans in question here were not issued to non-recognized Title IV schools, but federally recognized schools. The document says “In this adversary proceeding, the Plaintiffs allege, as to themselves and the putative class, that they attended or intended to attend Title IV institutions and received private loans owned or serviced by the Defendants that exceeded the cost of attendance at such institutions as defined by Internal Revenue Code Section 221(d), that they obtained bankruptcy discharges after January 1, 2005, that they have not reaffirmed their loans, and that they have been, and may continue to be, subjected to the Defendants’ actions to collect on these loans.”

The bankruptcy Adversary Case made the argument the private student loans should not be protected from discharge in bankruptcy. “Specifically, the Plaintiffs argue that their private student loans were discharged in their Chapter 7 bankruptcy cases because these loans do not meet the requirements to be nondischargeable under Bankruptcy Code Section 523(a)(8)(B) – that is, their loans are not “qualified education loan[s]” pursuant to Internal Revenue Code Section 221(d)(1). Namely, the Plaintiffs assert their loans do not meet Internal Revenue Code Section 221(d)’s requirement that a loan must not exceed the cost of attendance at a Title IV institution to be a “qualified education loan.” As such, they assert, the Defendants’ continuing collection efforts on their outstanding private student loans that were discharged violate the statutory bankruptcy discharge contained in Bankruptcy Code Section 524(a)(2). And at this stage in these proceedings, the Plaintiffs argue, the requirements for interim injunctive relief in favor of the putative nationwide class have been met, and these collection efforts should be stopped.”

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Navient Allegedly Defrauded Debtors and Bankruptcy Courts

The Court document states “The Plaintiffs allege that “[f]or the last ten years, [the Defendants] have . . . engaged in a massive effort to defraud student debtors and to subvert the orderly working of the bankruptcy courts.” Id. They claim that the “Defendants . . . originat[ed] and service[ed] dischargeable consumer loans [while] disguising them as nondischargeable student loans.” Id. The Plaintiffs advance these allegations on behalf of an alleged class of “similarly situated individuals who have declared bankruptcy since 2005 [across the United States,] with loans originated and/or serviced by Defendants.” Am. Compl. ¶ 5. And they allege that these loans “do not meet the definition of a nondischargeable qualified education loan” as set forth in Internal Revenue Code Section 221(d) and Bankruptcy Code Section 523(a)(8)(B).”

“The Plaintiffs allege that the “Defendants either misrepresented or failed to disclose facts and information related to the dischargeability of private loans,” and that the Defendants did not make the same misrepresentations “to more sophisticated parties.”

That is a true statement. See how Navient informed investors the loans may be dischargeable in bankruptcy in this previous post.

As this case proceeded, it appears Navient agreed they made no effort to determine the actual dischargeability of these private student loans. “In the context of this putative class, the Plaintiffs argue that Navient acknowledges that it has been collecting on the Putative Class Members’ loans without determining whether those loans are within or exceed the applicable cost of attendance pursuant to Internal Revenue Code Section 221(d)(2). Hearing Tr. at 5:23-25; 6:7-22. They point to the deposition of Patricia Peterson, Senior Vice President, Operations Support, of Navient Solutions, LLC as set forth in their motions for summary judgment and a preliminary injunction, and argue that her testimony shows that Navient made no effort to determine whether the Putative Class Members’ loans are within the applicable cost of attendance. Hearing Tr. at 5:25-6:1-6. ”

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Judge Strong says “it is worth noting that the question of dischargeability of a private student loan under Bankruptcy Code Section 523(a)(8)(B) turns on objective, not subjective, matters including the facts and circumstances of the loan and the applicable cost of attendance. If the facts show that a private student loan exceeds the applicable cost of attendance, then that borrower’s statement – boilerplate or otherwise – that a loan does not exceed the cost of attendance does not change those facts.”

Navient Student Loan Discharge Violations

Judge Strong wrote “For these reasons, and based on the entire record, the Court concludes that the Plaintiffs, on behalf of themselves and the Putative Class Members, have shown a likelihood of success on the merits of their discharge violation claims against Navient. The Plaintiffs have shown a likelihood of success on the merits of their claim that their private Tuition Answer Loans that exceed the cost of attendance do not meet the nondischargeability requirements of Bankruptcy Code Section 523(a)(8)(B), and are therefore within the scope of their bankruptcy discharges. And the Plaintiffs have shown a likelihood of success on the merits of their claim that Navient received notice of their bankruptcy discharges, and intended the acts that violated the discharge to collect on these discharged debts – that is, that Navient has violated the statutory bankruptcy discharge injunction as to the Plaintiffs and the Putative Class Members.”

“An attempt to collect on a discharged debt is not just about money – it is about the hardships and burdens that impair a debtor’s efforts to achieve the “fresh start” that is a centerpiece of the bankruptcy system.”

This case is not over by a long shot but the TRO is a big first step. It is not an unreasonable expectation after more legal wrangling that this finding will be expanded to include all private student loans as well.

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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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5 thoughts on “Tuition Answer Loans and Potentially Other Private Student Loans Might Not Be Collectible by Navient”

  1. I tried calling Navient to ask them why they are still collecting on my private loans since the TRO was issued, and I was told that I was not on the list for any special circumstances and collections will continue. I thought that if you had a bankruptcy in the past that your name was part of a registry and should have been included in the order. I tried contacting an attorney, but to no success as they are still under the impression that all student loans cannot be forgiven, even the private ones.

    Reply
  2. Hi Steve,

    I looks like Navient’s appeal to dismiss the restraining order was denied. See here: https://docs.justia.com/cases/federal/district-courts/new-york/nyedce/1:2022cv04398/483356/9

    This restraining order should be in effect as of 09/06, but it is set to expire on 09/22. Why is the length of the order so short when it will surely take much longer to decide this case? What happens next? Will Navient need to inform Tuition Answer loan holders about this restraining order?

    Reply
  3. Is the restraining order still on track to take effect 60 days after the ruling or did this get put on hold due to Navient filing an appeal?

    Reply

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