A Bunch of These Navient Private Student Loans May Really be Eligible for Bankruptcy Discharge Today

Bankruptcy attorney Chad Van Horn has recently filed suit against Navient for attempting to purse student loans after a consumer bankruptcy. The issue stems from the fact the loans appear to not be protected from bankruptcy, yet Navient continued to attempt to collect on them. If the loans were not protected in bankruptcy, they would have been fully discharged and Navient’s attempts to collect would create a HUGE issue for Navient.

This would also create a big potential windfall for attorneys who go after Fair Debt Collection Practice Act violations. Cha-ching!

I have previously talked at length about these types of private student loans that are not eligible for bankruptcy protection.

In this case put forward by Van Horn on behalf of his client, the stated facts are that Williams enrolled in a “bar study loan” for preparation before taking the Florida State Bar Exam to become a qualified lawyer in Florida.

The complaint says “Just after graduation in April 2011, Plaintiff received a Bar Study loan in the amount of $8,000.00 (the “Loan”) in order to prepare for the Florida State Bar Examination in July of 2011.

From the loan Plaintiff paid for a full Barbri preparation course and a partial Kaplan PMBR course.

Barbri and Kaplan are both commercial Bar preparation courses, which run for approximately eight weeks prior to the Bar Exam, and allow the test taker to review what she has already learned in law school and to learn Bar Exam-tested subjects that she has not yet studied. Both Barbri and Kaplan courses provide test takers with materials and a study plan to help prepare for the Bar exam.

Plaintiff used the remaining proceeds from the loan to pay for the living expenses of herself and her children while she studied for the Florida State Bar Examination and to cover the accommodations needed to sit for the Florida State Bar Examination.

In September of 2011, Plaintiff received an additional Bar Study loan in the amount of $7,000.00 (the “Loan”) in order to cover additional living expenses that the Plaintiff was unable to cover due to lack of employment.

Barbri and Kaplan, however, are not title IV eligible institution as that term is defined in 26 U.S.C. § 25A(f)(2) or Section 481 of the Higher Education Act. Thus, no money lent to Plaintiff could have been originated, characterized, or classified as a qualified education loan.”

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It seems clear from the court documents that Navient felt the private student loans were not discharged. They continued to attempt to collect.

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Well if they are not Title IV certified then as far as I’m aware the private student loans would not be protected in bankruptcy and should be discharged in the original bankruptcy filing. Of course I’m not an attorney and I’m sure a bunch of attorneys will be duking out these issues in court.

But in researching this story I came across an unusual situation. My go to resource to see if a school was approved by the Department of Education was the Database of Accredited Postsecondary Institutions and Programs. The assumption was always that a school would not appear in this Department of Education database unless they were eligible for federal funds in a Title IV program. But this case blew that assumption out of the water! And that assumption is held by many people. But apparently there is no resource for determining the Title IV eligibility of a school without a lot of footwork and research.

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Now there is a listing of current schools eligible for Title IV federal student aid programs but it is not easy to find and there is no historical record I can find. Probably the easiest way to determine if a school is Title IV eligible is to have some record of their FAFSA school code or lack of the school code, at the time of attendance.

Schools are denied Title IV funding or removed from the program on a weekly basis. For example, drilling down into data I can see that in the past month Pike County Career Technology Center, ABC Beauty Academy, Kilian Community College, Mueller College, and Trinity Lutheran College have all lost eligibility for one reason or another. This is not information that is easy to find for the average person.

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Even though Kaplan Test Prep is shown in the database as accredited by the Accrediting Council for Continuing Education and Training (ACCET) as a vocational school and ACCET says vocational schools are eligible Title IV schools, that is not entirely true.

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From the ACCET website member listing.

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But Kaplan Test Prep is very clear they are actually not Title IV eligible and thus the private student loans for Kaplan Test Prep courses would not be protected in bankruptcy.

Rather than make any more assumptions about Title IV participation I went to the source, Kaplan. The Kaplan website is clear they are not eligible for Title IV programs. – Source

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Russell Schaffer from Kaplan Test Prep confirmed this with me. He said, “Loans for bar prep with us are NOT Title IV.”

And just in case you need any more support for this fact we can turn to another Kaplan related page on their Metis website. – Source

The Metis site both confirms Kaplan Test Prep is accredited by ACCET and is not Title IV eligible.

“Kaplan, Inc. launched Metis in 2014 and has been awarded accreditation by the Accrediting Council for Continuing Education & Training (ACCET) for all Metis data science programming. ACCET has been recognized by the U.S. Department of Education since 1978, and Kaplan Test Prep, a division of Kaplan, Inc. has received back-to-back 5-year grants of recognition” And, “Although Metis is accredited by ACCET, we are not accredited as a Title IV organization…”

Kaplan appears to have been very clear about the fact their Kaplan Test Prep classes were not eligible for Title IV funding. And without the Title IV accreditation the institution would not, in my opinion, meet the definition of an “eligible education institution.” As bankruptcy attorney Craig Andresen says, “or perhaps the loan was not for attendance at an “eligible education institution” because the school was not accredited under Title IV of the Higher Education Act. All these are requirements imposed by section 221(d) of the Internal Revenue Code. Failure of a private student loan to meet any of these criteria means that the loan is fully dischargeable, because it would not qualify under section 523(a)(8) of the bankruptcy law.”

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Kaplan Test Prep

Kaplan Test Prep provides a great service for people facing tough testing. Their line of courses includes test prep for a wide range of studies.

Do You Have a Question You'd Like Help With? Contact Debt Coach Damon Day. Click here to reach Damon.

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This issue with Navient and Title IV funding is not a get out of jail free issue for people to just walk away from their student loans but for people like Verhonda Williams who needed the legal protection of bankruptcy, they should not be told their student loans were not discharged when in fact they actually were.

I wonder how many others are in the same boat or who did not pursue a fresh start allowed by law because they thought their Kaplan Test Prep private student loans were not able to be discharged in bankruptcy.

This doesn’t feel like any sort of conspiracy but just an administrative mistake that Navient should jump on immediately to fix and to review their records and fix all the accounts they attempted to collect on after the student filed bankruptcy.

I’m not going to contact Navient on this since this is part of an active lawsuit I’m going to assume they are going to deny the facts alleged and not give me any sort of statement admitting any fault. We are just going to have to wait for this case to make it’s way through the court.

If anyone would like more information on this case I would urge you to contact Chad Van Horn through his website.

If you have a credit or debt question you’d like to ask just use the online form. I’m happy to help you totally for free.

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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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