A Sallie Mae loan forgiveness lawsuit has been filed against Navient, which steered 350,000 borrowers into long-term forbearances. These forbearances only exacerbate the consumer debt burden and can have adverse effects on credit ratings and other factors. Here is a description of what happened:

Navient steered struggling borrowers into costly long-term forbearances

A new lawsuit reveals that Navient misled thousands of struggling borrowers by steering them into long-term forbearances. The lawsuit alleges that Navient failed to inform struggling borrowers about more affordable repayment options and steered them into costly forbearances instead. These forbearances are costly because they accrue additional interest on the loans and push borrowers deeper into debt.

As a result of the lawsuit, more than 400 Kansans will receive $10.3 million in student loan relief. The settlement resolves claims that Navient steered struggling borrowers into long-term forbearances and other financial plans that were less affordable. Attorney General Karl A. Racine’s announcement is good news for students in Kansas and throughout the country.

Under the settlement, Navient must correct these practices and provide accurate information to borrowers. It must also train its customer service agents to properly counsel distressed borrowers about their Public Service Loan Forgiveness (PSLF). Navient is prohibited from compensating these agents in a manner that minimizes the time they spend counseling borrowers. And it must implement these changes immediately. But it may not be enough. The settlement does not end the problem entirely.

As the settlement proceeds, Navient must notify qualifying borrowers of their options and the terms of their PSLF limited waiver. The PSLF limited waiver offers borrowers nonqualifying repayment periods to qualify for loan forgiveness. The settlement also requires borrowers to consolidate into the Direct Loan Program and file employment certifications before October 31st, 2022. A final judgment should be issued on this case soon.

Navients’ forbearances can be harmful to borrowers

For years, Navient has unfairly steered borrowers in need of help into forbearance, a temporary suspension of loan payments. While this arrangement allows borrowers to avoid making payments, the accumulated interest will continue to accrue. If the borrower defaults, the loan could be forgiven and all accumulated interest will be deducted from the loan’s principal balance. As of October, Navient added over $4 billion in interest charges to the principal balance of borrowers who had multiple forbearances in a row.

While forbearance programs have long been a popular way to avoid repayment, the current situation has led to a backlash among borrowers. Navient, which managed the federal student loan program, recently said it was transferring the accounts to another company instead of paying the borrowers’ balances. The company chose the quicker, cheaper route even though the move could have been detrimental to borrowers’ finances.

The federal government is investigating Navient’s practices to protect borrowers from predatory student loan practices. Navient steered borrowers away from important federal student loan relief programs by offering them forbearances. A forbearance, which allows borrowers to put off payments, does not count toward the repayment terms of other programs, such as Public Service Loan Forgiveness, which requires 10 years of public service.

Navient’s forbearances increase the debt burden

Navient steered struggling students into long-term forbearances since 2009. Many of these forbearances were not beneficial to borrowers. Rather, they increased the number of debt borrowers was burdened with by adding interest to their loan balances. In addition, Navient failed to link borrowers with income-driven repayment plans that could have reduced payments to nothing, provided interest subsidies, and even allowed for forgiveness after 10 or 25 years.

The lawsuit alleges that Navient provided subprime private student loans to borrowers with poor credit scores, knowing they would not be able to pay them back. Many of the borrowers involved in these lawsuits were students of for-profit colleges and schools with low graduation rates. The federal government only funds ninety percent of tuition payments to for-profit colleges, which means the remaining ten percent must be covered by private loans.

While the government has provided financial assistance to many borrowers, Navient’s forbearances only make it worse. Even though the federal government has stopped funding these schools, the settlement amount does not cover the entire cost of the loans. This settlement has a $1.7 billion price tag, and it does not cover all of the borrowers’ private student loans. While the payment amount may sound low, it could end up costing more than $100,000 over the life of the borrowers.

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