Student Loan debt cancellation is going forward and is being attacked on all fronts. The latest efforts come from the Massachusetts Senator Elizabeth Warren, who demanded that the company Navient cancel “decades-old predatory private student loans”. This demand would fall under a Federal Trade Commission (FTC) protection law that could enforce the issue.
The demand came about after Navient representatives announced that some of the company’s private and commercial loans in the Federal Family Education loan program would be moved to MOHELA, a major federal student loan servicer. This move would see millions of American’s private loans become Federal Loans, allowing them to fall under Federal Loan Forgiveness plans, but the hope is that it will not need to go that far.
The Department of Education (DOE) has previously exerted its power by cancelling federal student loans for borrowers under the FTC’s borrower defense to repayment rule, which protected borrowers from repayment on their student loans if the school they had attended became unaccredited after they had obtained their degree. This move was great for many former students, but because Navient is a private company, others had to continue to repay the loans.
With this new move the company is making, Warren and eight other Democrats asked Navient to forgive the remaining student debt under the Holder Rule, which allows borrowers to be free of the obligation as long as the university “fraudulently induced the student to enroll and had some relationship with the lender,”
Student Loan debt future after Navient transitions
Navient was found to be one of the lenders that had a relationship with now unaccredited universities and was fined for their actions. A settlement with 39 states for $1.7 billion was reached when the accusations of working with for-profit schools to give students high default-rate loans were found to be substantiated. This fine was, however, not enough to cover all the debt incurred by students and was funneled towards students that had defaulted on their loans for seven or more months before June 2021.
Alex Beene, a financial literacy instructor at the University of Tennessee at Martin gave a statement regarding the issue “The concern is if Navient doesn’t deal with these loans before they outsource them to another student loan provider, MOHELA, they’ll continue to plague millions of loan holders’ accounts”
One of the most frequent issues borrowers face when dealing with forgiveness programs is the doubts on whether or not they qualify and the complex application process. This process could be simplified by lending agencies since they have all the information, but like others, Navient just encourages borrowers to apply for the programs independently. The Democrat senators involved in this new initiative have urged the company to automate the relief process.
“Navient should stop making borrowers apply for relief and instead automatically cancel student debt using information the company already has about whether borrowers attended schools that would entitle them to relief,”
The hope is that by streamlining the process before the transition borrowers will be able to take charge of the repayments more easily. Some of the data that would be helpful to have in this transition is “the number of borrowers who went to the for-profit schools, how many have applied for loan forgiveness and how the company incorporates the Holder Rule” Navient has not yet released any of the information but a representative has stated that the company will “work toward ensuring a seamless transition in the coming months and providing customers with uninterrupted servicing of their loans.”
Representatives from other student loan platforms like Aaron Smith, the co-founder of Savi approve of the measures impulsed by Senator Warren “Most of the attention in student loan forgiveness has focused on federal student loans, but private loans are also an important part of the puzzle. Traditionally there have been fewer options for borrowers with private student loans to adjust their monthly payments or access loan forgiveness.”
Others like Michael Lux, an attorney and founder of the Student Loan Sherpa, urge borrowers to continue to research options “Senator Warren‘s efforts to automate forgiveness are commendable, but borrowers should also take action on their own behalf. Navigating repayment is often complicated and frustrating, but there are resources available to help. Ignoring your student debt or hoping for the best is an expensive strategy.”
