Navient’s $1.7 billion student loan settlement is too good to be true

After years of struggling to make payments with little effect on the loans she took out to attend a now defunct art school, Victoria Linssen saw a glimmer of hope. A deal last month between 39 states and Navient, a giant student loan company accused of unfairly trapping borrowers like her, would wipe out $1.7 billion in private student loans.

Then she read the fine text: People like her who pay on time will be excluded from the relief measure.

Although prosecutors say Navient lent money to hundreds of thousands of people it knew they couldn’t repay, the settlement only included about 66,000 defaulters. Those who have managed to pay off their fraudulent, high-interest debt – mainly to attend for-profit schools that cost them worthless degrees – will have to keep paying.

Ms Linssen, 57, who sends Navient about $500 a month – says: “I was surprised to skip the grocery store to do it – after graduating from Brooks Institute, an art school for profit in California. struggled to use her degree and now works as a digital marketing director in Muncie, Ind., where her paychecks are expanding.

“It’s not fair,” she said. “If you are scammed by your school, you have been scammed, and your loans will be released whether you have paid them or not.”

The settlement is almost done a decade of state investigation into the role of Navient, the lender and loan service provider that has long been a mainstay of the education loan market, playing a role in a bleak cycle of vulnerable students, schools for dubious profits and tax dollars.

State prosecutors say Navient, which operated as Sallie Mae until 2014, is willing to provide private loans to borrowers they know they can’t pay back because of them. was a money-losing ploy for a much more profitable product: federal student loans.

Beginning in the early 2000s, Navient and the schools it partnered with used private loans to fill the gap for students who relied on government-backed loans from Navient to pay for most of their education. their fees.

Even if private loans aren’t repaid, federally guaranteed loans are still a big source of revenue for Navient – and the more borrowers they attract, the more money they make. One Internal Navient email cited in court documents described private loans as a “trap” to attract more government-backed loans.

Navient began to shorten the tactic only after it and other lenders faced engulfed in a series of scandals about their activities; The strategy largely ended after the federal government started direct student loans in 2010.

Both Navient and the states called the settlement a victory: Navient admitted no wrongdoing and avoided lengthy court battles, while prosecutors claimed $1.7 billion in debt was paid. excuse.

But Navient never expected to be paid that much back. The net worth of the debt it has forgiven, the company tells its investors is only 50 million dollars.

And Navient doesn’t have to compensate borrowers who always pay them. They will have to keep paying Navient, often for a decade or more, on private loans that public officials say never came through.

“It feels like a betrayal – we’re being penalized for repayment,” said Jacqueline Strouse Schible, 39, who attends the California Institute of the Arts campus in San Diego, where she lives. She pays Navient $600 a month with a balance of $23,000 for her own personal loans and those she co-signs for her mother, who attended the ITT Institute of Technology. Both schools collapsed following state and federal crackdowns.

Schools such as the Academy of Arts chain and ITT Tech – major players in an industry with a history of sub-par results for students – play a key role in Navient’s strategy.

A longstanding government policy, known as the 90/10 rule, requires for-profit schools that receive federal student loans to get at least 10 percent of their funding elsewhere. . The goal is to force schools to demonstrate that they can attract other sources of support.

By using its private loans to help schools fill that gap, Navient has secured a steady stream of borrowers for government-backed loans. According to Attorney General of Pennsylvaniabut the number of loans Navient made to those borrowers increased to 54,000 in 2006 from 706 in 2000. Some schools even made Navient . loss allowance.

Thomas Fitzpatrick, a former Navient chief executive, said in a 2007 meeting, according to court filings: “If borrowers can create condensation on the mirror, they need to borrow this year.

Although Navient has made hundreds of thousands of private loans as part of its strategy, it is unclear how many borrowers are still repaying lenders. Some have paid off or refinanced their loans, and Navient declined to say how many loans they still have over that period.

Matthew Revezzo, 32, took out private and government-backed loans in 2007 to finance his bachelor’s degree in graphic design. He borrowed $130,000 to attend the New England Institute of the Arts, part of a chain owned by Education Management Company, which went bankrupt in 2018 after faces state and federal charges over its recruiting tactics.

Mr. Revezzo, who lives in Natick, Mass., chose the school because it promised that employers were eager to hire its graduates. But every application is rejected. One recruiter eventually leveled him: The school had a terrible reputation, and Mr. Revezzo’s skills couldn’t get him hired.

Mr Revezzo said: “I was overrated. “I have a degree. I worked hard for it. “

He found work in an unrelated field – he was a digital production specialist – but his six-figure debt was stifling and the double-digit interest rates on private loans. The man had stifled his progress. Four years ago, he refinanced Navient’s two most expensive loans with another lender. He keeps the most affordable: $13,000 with an interest rate close to 11%.

The $1,100 he pays each month on his private loans is roughly equal to the rent. For years, Mr. Revezzo worked seven days a week, adding evening shifts and weekends at the supermarket to his day job. Now, he’s made enough money to skip a second job, but he’s still putting off the medical care he needs but can’t afford.

Mr Revezzo said that Navient’s removal from the settlement was “very angry”. “I know people who have been insolvent and are now in the past. They have no debt. It deducted their credit score and they were able to get on with their lives, while I was still spinning my wheel. “

Eileen Connor, director of Predatory student loan projectrepresenting former students at for-profit schools, said states have used a familiar book in reaching settlements.

“Let’s make this big announcement that makes an impression in the public mind – and sadly in the minds of those with these loans – that relief is here,” she said. “But when you go into the details, it doesn’t really help a lot of people.”

The state officials who reached the agreement stood by it.

Rob Bonta, California’s attorney general, said the settlement focuses on borrowers, who are “hurt the most by bad behavior – they are the ones who suffer the most, the most needy”. The deal punishes “a bad guy who sent a lot of bad debt into the student world,” said Bonta, whose state was one of five leading the settlement.

Borrowers covered by the deal – usually those who were past due at least seven consecutive months by June 20, 2021 – were elated. Their remaining Navient private loans, averaging nearly $26,000, will be cancelled. “I’ll sleep better,” said one borrower, Ashley Hardin, told The New York Times last month.

But borrowers left behind have few options.

They can find a way to get rid of any federal loans through a program called “Borrower protection for debt repayment, ” It is possible to wipe out student loans that are scammed by the school. Several defunct schools cited in the state’s Navient settlement, including ITT and the Marinello School of Beauty, are already included in the program. Education Department officials added a still-active chain, DeVry University, to the list on Wednesday, and more requests could be approved soon.

But that system does not include private loans. Borrowers who want to write off those accounts can pursue their own lawsuit against Navient, although their odds are very low.

“You’re relying on state laws that prohibit fraudulent practices, and the strength of those regulations varies widely,” says Adam Minsky, a Boston attorney who specializes in student loan cases. “Many state court judges do not sympathize with allegations that the loan was used to attend a school for the purpose of murder. There is a real feeling that if you signed the loan, you have to repay it.”

Ms. Linssen, who still owes $70,000 in private loans she took out to attend the Brooks Institution, a California nonprofit that made a sudden hit in 2016, said she hopes to sue Navient. She continues to pay her personal loan bill because she doesn’t want to put her mother, the loan co-signer, in the dark.

“Otherwise, I would have strategically defaulted,” Ms. Linssen said.

While her debt hangs over every financial decision she makes, Navient is now free of the “burden, cost, time and distraction” of states’ claims, company said in a statement.

Navient spokesman Paul Hartwick added that the settlement should never have been necessary. “Our position that these allegations are baseless and unfounded has not changed since these cases began nine years ago,” he said.

Navient hasn’t made federally guaranteed loans in more than a decade, and last year said it would Stop providing millions of federal loans on behalf of the government. Its focus now is on the booming private loan business: Last year, Navient generated $6 billion in student private loans, making it the largest service provider. of the country.

Last month, Navient reported a profit of $717 million for 2021. “Our most accomplished and successful year ever,” said Jack Remondi, Navient’s chief executive officer.

He added, “It was a year where we surpassed all of our goals.”

https://www.nytimes.com/2022/02/17/business/navient-student-loan-settlement.html Navient’s $1.7 billion student loan settlement is too good to be true

Fry Electronics Team

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