All posts by mikenorris

Mike has practiced law for 33 years, helping consumers and small businesses with debt problems, lawsuits, and creating good business practices. A small businessman himself, he is well familiar with the problems and growing pains that every business experiences. In addition, he is a strong proponent of budgeting and financial planning for consumers and businesses, as a way to maintain financial stability

Student Loans spotlight: Federal lawsuit claims Navient negligent

I last night appeared on WISH-TV (Channel 8), as the 11 o’clock news ran a segment on student loans, and a recent federal lawsuit.   I was interviewed, and you can view that segment here:  http://wishtv.com/2017/01/19/federal-government-files-lawsuit-against-student-loan-company-navient/.  If you have student loans or your friends and relatives do, it is useful to review that segment.

Two days ago the federal government, through its Consumer Financial Protection Bureau (called hereafter “CFPB”) filed suit against Navient Corporation, a large local employer. This corporation is the former Sallie Mae/ USA Funds, which corporation has a significant presence just off of I-69 in Fishers.

The suit has significance to many student loan borrowers, because Navient is the largest student loan servicer in the United States. It services loans for more than 12 million student loan borrowers, including over 6 million customer accounts under a contract with the US Department of Education.  It is responsible for administration of more than $300 billion in federal and private student loans.

It seems the government lawyers wanted to get the case on file before the change of administration today. The lawsuit, filed two days ago, alleges that Navient is not handling department of education accounts properly, and can be viewed here: http://files.consumerfinance.gov/f/documents/201701_cfpb_Navient-Pioneer-Credit-Recovery-complaint.pdf

Of course, most of us will not want to read all of that legalese.  The pertinent details are quoted in this article, so that student loan borrowers can discern “what the heck is going on”.  Please bear in mind that these quotes are allegations in a lawsuit, not proved facts which have resulted in a judgment in federal court.

Nevertheless, these statements are beyond mere suspicious fantasy, as they are based on Navient records of actual Navient transactions with student loan borrowers.  For purposes of this post (and to avoid confusion) I have listed the allegations by complaint paragraph as listed in that legal document, and have used a different type face (italic) to distinguish my thoughts from those of the federal government.

As the suit explains, most federal student borrowers have a right under federal law to set their monthly student loan payment as a share of their income, but the CFPB alleges:

  1. Navient has failed to perform its core duties in the servicing of student loans, violating Federal consumer financial laws as well as the trust that borrowers placed in the company. Most federal student borrowers have a right under federal law to set their monthly student loan payment as a share of their income, an arrangement that can offer borrowers extended payment relief and other significant benefits. Navient systematically deterred numerous borrowers from obtaining access to some or all of the benefits and protections associated with these plans. Despite assuring borrowers that it would help them find the right repayment option for their circumstances, Navient steered these borrowers experiencing financial hardship that was not short-term or temporary into costly payment relief designed for borrowers experiencing short-term financial problems, before or instead of affordable long-term repayment options that were more beneficial to them in light of their financial situation.
  2. For borrowers who did enroll in long-term repayment plans, Navient failed to disclose the annual deadline to renew those plans, misrepresented the consequences of non-renewal, and obscured its renewal notice to borrowers who were due for renewal. As a result, the affordable payment amount expired for hundreds of thousands of borrowers, resulting in an immediate increase in their monthly payment and other financial harm.
  3. Taken together, these practices prevented some of the most financially vulnerable borrowers from securing some or all of the benefits of plans that were intended to ease the burden of unaffordable student debt.
  4. Navient’s servicing failures, however, were not just limited to enrolling and renewing borrowers in affordable repayment plans. Navient also misreported information to consumer reporting agencies about thousands of borrowers who were totally and permanently disabled, including veterans whose total and permanent disability was connected to their military service, by making it appear as if those borrowers had defaulted on their student loans when they had not, damaging their credit; misrepresented one of its requirements for borrowers to release their cosigner from their private student loan, thereby denying or delaying access to an important feature on many cosigned private loans that relieves a cosigner of responsibility for the loan once the borrower meets certain eligibility criteria; and repeated the same errors in processing federal and private student loan borrowers’ payments month after month, even after borrowers complained to Navient about those errors.
  5. Since at least July 2011, tens of thousands of borrowers and cosigners have filed complaints with Navient, the Bureau, other governmental and regulatory agencies, and other entities about the difficulties and obstacles they have faced in the repayment of their federal and private student loans serviced by Navient.

Wow, that is some pretty language!  As to a subsidiary (Pioneer), the CFPB alleges:

  1. Much of Pioneer’s work relates to the federal loan rehabilitation program, which is a program that allows federal student loan borrowers who are in default to effectively “cure” one or more defaulted federal loans.
  2. In seeking to enroll consumers in the rehabilitation program, Pioneer systematically misled consumers about the effect of rehabilitation on the consumer’s credit report and overpromised the amount of collection fees that would be forgiven by enrolling in the program.

The CFPB further comments on Navient’s “steering” borrowers into high cost postponement of payment (forbearance) instead of enrollment into federally mandated income based repayment:

  1. Navient representatives sometimes initially responded to borrowers’ inability to make a payment by placing them in voluntary forbearance without adequately advising them about available income- driven repayment plans. This occurred even though it is likely that a large number of those borrowers would have qualified instead for a $0 payment in an income-driven repayment plan at that time. Indeed, over 50% of Navient borrowers who need payment relief, and meet the eligibility criteria for income-driven repayment plans, qualify for a $0 monthly payment.
  2. For example, between January 1, 2010 and March 31, 2015, nearly 25% of borrowers who ultimately enrolled in IBR with a $0 payment were enrolled in voluntary forbearance within the twelve-month period immediately preceding their enrollment in IBR. Similarly, during that same time period, nearly 16% of borrowers who ultimately enrolled in PAYE with a $0 payment were enrolled in voluntary forbearance within the twelve- month period immediately preceding their enrollment in PAYE. The majority of these borrowers were enrolled in voluntary forbearance more than three months prior to their enrollment in the income-driven repayment plan, which suggests that forbearance was not merely offered to these borrowers while their application in an income-driven repayment plan was pending. Because they were placed into forbearance before ultimately enrolling in an income-driven repayment plan with a $0 payment, these borrowers had delayed access to the benefits of the income- driven repayment plan. They were also subject to the negative consequences of forbearance, including the addition of interest to the principal balance of the loan, which they potentially could have avoided had they been enrolled in the income-driven repayment plan from the start.
  3. Navient also enrolled an immense number of borrowers in multiple consecutive forbearances, even though they had clearly demonstrated a long-term inability to repay their loans. For example, between January 1, 2010 and March 31, 2015, Navient enrolled over 1.5 million borrowers in two or more consecutive forbearances totaling twelve months or longer. More than 470,000 of these borrowers were enrolled in three consecutive forbearances, and more than 520,000 of them were enrolled in four or more consecutive forbearances. For borrowers enrolled in three or more consecutive forbearances, each forbearance period lasted, on average, six months. Therefore, hundreds of thousands of consumers were continuously enrolled in forbearance for a period of two or three years, or more. Regardless of why these borrowers did not enroll in an income-driven repayment plan from the start, their long-term inability to repay was increasingly clear as each forbearance period expired. Yet Navient representatives continued to enroll them in forbearance again and again, rather than an income-driven repayment plan that would have been beneficial for many of them.
  4. Enrollment in multiple consecutive forbearances imposed a staggering financial cost on this group of borrowers. At the conclusion of those forbearances, Navient had added nearly four billion dollars of unpaid interest to the principal balance of their loans. For many of these borrowers, had they been enrolled in an income-driven repayment plan, they would have avoided much or all of their additional charges because the government would have paid the unpaid interest on their subsidized loans in full during the first three years of consecutive enrollment.

The CFPB also showed concern about Navient’s practices in failing to counsel income based repayment (IBR) customers concerning how they could continue in the IBR process:

  1. A federal student loan borrower who is enrolled in an income- driven repayment plan must certify his/her income and family size to qualify for an affordable payment amount that is based on that income and family size. This affordable payment amount applies for a period of twelve months. At the end of this twelve-month period, the affordable payment amount will expire unless the borrower renews his/her enrollment in the plan before the expiration date….
  2. If the twelve-month period expires because the borrower has not timely recertified income and family size, several negative consequences are likely to occur. First, the borrower’s monthly payment amount may immediately increase from a low affordable amount to one that is typically in the hundreds or even thousands of dollars.
  3. Other significant consequences that will occur when the twelve- month period expires without a timely recertification include (1) the addition of any unpaid, accrued interest to the principal balance of the loan; (2) for subsidized loans in the first three years of enrollment in an income-driven repayment plan, the loss of an interest subsidy from the federal government for each month until the borrower renews his/her enrollment; and (3) for some borrowers who enroll in forbearance when the twelve-month period expires, delayed progress towards loan forgiveness because the borrower is no longer making qualifying payments that count towards loan forgiveness. These consequences are all irreversible.

The “failure to counsel” seems to be born out by the statistics Navient has maintained::

  1. Between at least July 2011 and March 2015, the percentage of borrowers who did not timely renew their enrollment in income-driven repayment plans regularly exceeded 60%. Those borrowers who did not timely renew experienced the significant consequences of nonrenewal, including a payment jump and the addition of any accrued, unpaid interest to the principal balance of the loan.

Later in the court filing, the CFPB concludes that consumer payments were not processed correctly::

  1. As described above, in numerous instances, Navient made errors, sometimes month after month, in misallocating and misapplying payments made by consumers. Moreover, Navient failed to implement adequate processes and procedures to prevent the same errors from recurring, or to prevent the same errors from impacting other consumers.

Abuses regarding releases of cosigners and false credit reporting payment are also alleged The complaint hyperlink above can be perused for details.

This lawsuit is quite troubling, as we attempt to safeguard the integrity of our educational system and the financing of it.  Certainly an objective and close examination of any problems is warranted.  If you have questions, I can be reached at mike@mikenorrislaw.com.

How the federal government can help student loan borrowers

Because of the structure of lending, the student today with a five year plan to graduate will spend up to a 1/3 of his life (25 years) paying for what he got, an education.  The economic value and quality of the education is, of course, important.

The federal government, through its Department of Education, has rigorous standards.  The Department of Education holds high schools, and even grade schools, accountable to these standards and reviews performance on a regular basis.  Insuring educational value is delivered to the American consumer is a clear and consistent federal goal.

But a breakdown has occurred on the college level: trade schools with inferior instruction and high pressure sales techniques have flooded the marketplace with high cost alternatives to public universities and institutions of higher learning.  These “for profit” colleges are fairly unregulated, and often not accredited by traditional sources.  Studies show their degrees are not given the same respect in the employment marketplace as those from publicly funded universities (such as Indiana University or Purdue) and “not for profit” universities (such as the University of Indianapolis or Butler University).

Sadly, trade schools promising a college education are often institutions of lower learning, less supervised in their access to federal funds than the average high school.  Yet in recent years they have received a large portion of the 1.3 trillion now owed on student loans. This is not small change.

That lack of federal supervision and oversight has been an opportunity for profiteers in the “education business”.  According to the business model many trade schools have endorsed, overpromising is just “good sales technique”.  Likewise, underdelivering is a way to “keep costs down” and profits up.  Unfortunately, this way of thinking is now pervasive: institutions of higher learning are thinking on a lower level, about profit achievement more than educational achievement.

Certainly the US Department of Education did not, and has not, endorsed such behavior.  But it has funded those schemes, using billions of dollars of federal student loan monies.  With all that money gone from the federal treasury, the student is expected to pay the US Department of Education regardless of high cost and little value.  Meanwhile, the student’s debt load has increased dramatically, but his earning power has not.

The trade school closures and bankruptcies, most recently ITT and Corinthian, create for the federal government a public relations nightmare:  the government must now collect from naive students the “ill gotten gains” which enriched institutions of lower learning in the billions of dollars from taxpayer funds.  As a former full time college professor for 6 years, I find this offensive.

Because the US Department of Education disbursed those funds without effective oversight, it now must find someone at fault.  Better late than never, as the old saying goes. If the US Department of Education can find someone to blame, so the reasoning goes, that federal agency can escape criticism of its role in this massive disbursement of federal funds without oversight.

The student loan debt is now owed to the federal government (through the Department of Education).  According to the debt arrangement, the federal government will now hold the student accountable for what was done.  For now, the federal government holds the student accountable for what was done by him, and likewise holds him accountable for what was done to him.

In this search for accountability, the US Department of Education has first pinned the blame on closed schools, but only to the extent the student was active in that time frame in seeking the degree.  As to the “real world economic value” of the product the student bought, this is not considered.  Nor is the cost considered, even if that cost is exorbitant for results obtained. Nevertheless, it is this undefined “price/earnings ratio” which will show the true value of the degree over time.

It would appear that the violations which the Department of Education has cited against ITT in recent years prove the point:  ITT was negligent.  But there is not yet an admission that all who supervised ITT and other schools were also negligent.  This would implicate the US Department of Education, the source of funds.  As to the student, that naïve student was the least effective or capable in supervising the trade school. The purse strings were held by the US Department of Education, without monitoring the use of those funds.

Nevertheless, the Department of Education has said in recent investigations that “the actions we are taking against ITT… are based on operational and financial risk…not on the finding that they (ITT) defrauded students”.  With this statement and policy on the part of the Department of Education, it would seem that erasing these student loans for those who have received modest benefit will not be easy, unless the school closed while they were enrolled currently.

A review of the Department of Education website indicates that the student loan discharge rules are numerous and restrictive. Nevertheless, it is the opinion of this author that those rules are arbitrary.  Federal judges can review such rules in bankruptcy proceedings creating “new rules” for discharge of student loan debt, on an individual basis.

For the time being, those rules are administered by collectors who receive a commission rate of 13 to 18% for collecting funds. They are not in the business of giving students a break.

Further review by the US Department of Education shows well documented abuses by student loan collectors, who do not discuss all options with students, as the collector hopes to funnel the former student into a profitable collection system. Thus, the US Department of Education makes it clear that they do not wish to deal with the issue of high debt and little value for the student.  The US Department of Education would rather delegate the task of considering the student’s dilemma to collectors working on commission.

Due to lack of oversight and abuse of federal funds, the United States Department of Education has issued “school fraud” rules for schools which accept federal student loan funds.  In short, these rules would limit, as of November 1st, 2016, the availability of these funds for schools which failed to demonstrate an educational benefit in line with the cost.  Of course this is the right rule for the future, regardless of whether the school is public or private, a “not for profit” or a school organized as a business.

But what about the past lending mistakes which have burdened low income students with high debt?  The bankruptcy in May, 2015 of the Corinthian Schools network caused the alarm bell to sound.  This publicly traded trade school/company had enrolled more than 70,000 students the year before, at more than 100 campuses.  This was becoming quite a massive problem, for more than just a few students. And trade schools are quite expensive, anywhere for 2 to 4 times the cost of public universities, with the vast majority of their funds coming from student loans.

On September 13th of this year, our own United States representative Luke Messer has filed a bill to restore the G.I. educational benefits for veterans who saw their moneys dissipated with closed trade schools. This could be a significant benefit to many.

Nevertheless, the future looks bleak for trade schools, and many bankruptcies beyond the ITT bankruptcy are anticipated. As to the student with unsustainable loan debt, there may be a silver lining to this dark cloud:  a student’s bankruptcy can adjust student loan debt, contrary to what most believe.

As to the future, the warning signs are clear.  Any college (public or private) which offers poor quality of education and low job placement, lack of transferability of credits, and high student debt can lead to financial ruin for all concerned.

It is time to clean up the mess.  Holding schools and accreditors accountable to the US Department of Education is a start.  The lack of accountability of the past is the next issue, shown in unsustainable student loan debt.  What can be done?  For now, the US Department of Education is of little help except after a school is closed, a fact that the federal courts will examine in adjusting that debt on an individual basis.

With hope for the future, we must look to productive solutions, even if in the courts.  It is important to insure education continues to be a meaningful goal for our youth.

Federal help for ITT students: discharge of student loans

In the light of the ITT technical Institute bankruptcy, many students are left with high student loan debt and no degree.  But there may be some relief available for those who have not yet graduated. It is the purpose of this post to explore those options that the reader might benefit, or pass the information along.

Perhaps a little explanation of the student dilemma in this typical “trade school” is in order. When a school such as ITT closes, the students can’t get the associates, bachelors, and master degrees hoped for;  thus, they are deprived of the “benefit of the bargain”.

For the student, the denial is more than just denial of ego satisfaction.  He has pinned his hopes  on the earning power that degree represents for him.  He anticipates that all will benefit from his efforts.  It will be wonderful for his family.

The school has a different idea:  it is called a profit model.  The measuring stick is the bottom line.  Product quality, marketing, and management are all expenses.  The less expenses the better.  This is what benefits the bottom line.  In this line of thinking, there is no value in educating the customer to become a well informed shopper. The prospective student doesn’t need to know about education cost & education value; such a concern would just interrupt the sales process.

But back to the end result:the school closes.  Now student loan debt is owed on a college degree that won’t be obtained at this institution, and may never be obtained at all.  Without a change of circumstance, the economic power that college degree represents will never materialize.  Some students lose hope, feeling themselves further behind, with more debt and less earning power than planned.

The “Closed school Discharge” is a mechanism put in place by the federal government, to allow the student who cannot complete his degree to seek relief from the student loan burden which he must carry. The information on that federal program can be found at https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/closed-school.  The form which needs to be filled out to apply for administrative discharge can be found at:

http://www.ifap.ed.gov/dpcletters/attachments/GEN1418AttachLoanDischargeAppSchoolClosure.pdf  .

Of course, use of government websites is not always as simple as it looks.  There are certain “gotchas” in the administrative procedure, which do not allow the student who transfers his credits to another school (or has already received his degree) to seek forgiveness of his student loans.

As is true with many government programs, the “simple” process has become quite complex. The student who wants to transfer his credits to a new institution often finds most (if not all) of his credits will not transfer.  This is because of lack of accreditation for the trade school from which he is transferring.

ITT Educational Services has increasingly been the subject of state and federal investigations in recent years.  These actions have resulted often in sanctions against ITT and penalties.  Nevertheless,   the US Department of Education does not recognize the validity of their own investigations, when the student who has his diploma petitions for student loan relief .

In  essence, the Department of Education wants each student to prove that he was defrauded, that “what he got” was too expensive for the results obtained.  In short, the student must prove the price of the education far outweighed its real world earning potential.

This burden falls on the student, even though both federal and many state governments are currently investigating inadequate instruction in rogue schools taking federal student loan moies.  Many of these investigations show oversight of federal student loan lending has been lacking.  Most often, significant findings of neglect and abuse on the part of trade schools were left unwatched but then “discovered” by government agencies.

So it can be tough getting an administrative discharge.  If denied, an appeal can always be taken directly to the Department of Education.  This is where the counsel of an attorney experienced in this area can be quite useful.

If the Department of Education administrative discharge appeal is not effective, every student has access to the federal courts. The student may seek to address the student loan debt directly with the Department of Education in an “adversary complaint” in the bankruptcy courts.

Due to the fact that ITT and other schools have recently lost their entitlement to federal funds from student loans, the courts will be burdened more and more with these issues, as will the Department of Education in considering administrative discharges. At this point in time, it seems that many of the “trade schools” in all probability will be closing in the coming months.

The law on student loans is evolving, as new facts come to light about trade schools, quality of instruction, and quality of job placements.  The ITT bankruptcy does not bode well for the student who did not get the benefit of his bargain, either in quality of instruction or job placement: he will have no recourse against ITT. His only recourse will be against the federal Department of Education, a powerful adversary.

Nevertheless, it is the authors opinion that any student who has not been able to complete his degree due to school closure should apply for the administrative discharge.  If there are issues and complexities, as always seem to arise, competent legal counsel should be used to sort out the mess.

The hope of the next generation that an education will bring them to a satisfying adulthood hangs in the balance. We should not let these young folks down, and saddle them with debt which cannot be paid off.