Student loan borrowers in the dark about little-known program that cancels ALL debt
- Many are unaware of the program which has not been widely advertised
- READ MORE: Inside the meltdown at student loan servicer MOHELA
Experts are sounding the alarm about a little-known program which could provide forgiveness for certain borrowers with private student loan debt.
More than a million borrowers who were defrauded by schools have had billions of dollars in federal student debt cancelled through a government program.
But Americans with private loans have generally not been able to get debt relief - even if they were a victim of misconduct such as schools inflating graduate earning potential or career growth.
Navient, a large private student loan servicer, has created a program that allows borrowers who were defrauded by their school to apply for loan forgiveness.
But a lack of publicity and a 'burdensome and confusing' application process is blocking Americans from accessing the relief, The New York Times reported.
Americans with private loans have generally not been able to get debt relief - even if they were a victim of misconduct such as schools inflating graduate earning potential or career growth
The new program from the servicer based in Wilmington, Delaware, is called a 'school misconduct discharge.'
It is something of a parallel to the federal 'borrower defense to repayment' program which allows those who were misled by for-profit schools to have their debts forgiven.
Under the Biden administration, this program has cancelled nearly $30 billion in federal debt for 1.6 million borrowers.
Nonprofit legal organization the Project on Predatory Student Lending (PPSL) launched a campaign at the end of May to raise awareness for Navient's program in a bid to help borrowers.
In a statement, the organization said Navient 'recently began quietly sending its new application to a select few borrowers.'
Boston-based PPSL published Navient's application form and an instruction guide for borrowers with private loans seeking debt forgiveness based on the grounds that their school lied to them.
'We're spreading the word to ensure that impacted borrowers - not just those that Navient hand picks - know that there is a path to relief,' Eileen Connor, president and executive director of PPSL said in a statement.
The organization points to a 1976 Federal Trade Commission regulation as basis for borrowers' claims that their private loans should be forgiven.
The Preservation of Consumers' Claims and Defenses or 'Holder Rule' allows those who use certain types of loans to contest the debt if they did not receive the goods or services they purchased as promised.
'Private student loans have always carried basic consumer protections like borrower defense, yet lenders and servicers have obstructed borrower efforts to realize them, individually or at scale,' Connor said.
For nearly a decade in the early 2000s, Navient - then known as Sallie Mae - struck deals with for-profit schools to issue private loans to their students, The New York Times reported.
Lawsuits later accused the servicer of making the loans knowing that most would never be repaid.
In 2022, Navient settled with 40 state attorneys general to cancel $1.7 billion in debt on private loans - but only for borrowers who had already defaulted.
Those who had not defaulted on their loans had to continue paying.
But a pressure campaign from lawmakers, lawyers and regulators prompted the company to create the 'school misconduct discharge' program, the outlet reported.
For nearly a decade in the early 2000s, Navient - then known as Sallie Mae - struck deals with for-profit schools to issue private loans to their students
Navient, a large private student loan servicer, has created a program that allows borrowers who were defrauded by their school to apply for loan forgiveness
One borrower who had their loans forgiven under the program is Danielle Maynard, 34, who recently received notice that nearly $40,000 in private loans would be cancelled for her studies at the New England Institute of Art in Brookline, Massachusetts.
She had been paying $700 a month to Navient for more than a decade for the debts, which she took out to study at the school which has now closed.
Maynard told The New York Times that she 'cried, a lot' when she found out the loans had been wiped out.
But others have complained on social media about difficulties accessing the application form.
Senator Elizabeth Warren, alongside eight Senate colleagues, sent Navient a letter last month with questions about the 'school misconduct discharge' program.
This included concerns around the 'burdensome and confusing' 12-page application form that borrowers must make to ask for private loan relief.
'Navient has admitted responsibility for canceling their predatory loans but set up a process for cancellation that's impossibly confusing for borrowers,' Senator Warren said.
'I won't let Navient get away with cheating defrauded student loan borrowers out of the relief they deserve.'
When asked about the program and the criticisms, a Navient spokesperson told The New York Times: 'Borrowers may contact us at any time, and our advocates can assist.'
In a letter to senators reviewed by the outlet, the company said it had discharged 'some' loans for borrowers who meet the Holder Rule criteria, and had 'recently introduced an enhanced process for borrowers to seek discharge,' which it described as 'still in its early stages.'
Senator Elizabeth Warren (pictured) and eight Senate colleagues sent Navient a letter last month with questions about the 'school misconduct discharge' program
It comes as furious lawmakers and campaigners have called for federal loan servicer MOHELA to be 'fired' amid mounting reports of widespread failures.
Members of Congress, advocacy groups and student loan borrowers held a press conference in Washington DC last month to demand the federal government terminate its contract with the company.
They insist that the Missouri Higher Education Loan Authority - otherwise known as MOHELA - is axed for its mismanagement of millions of student loan accounts.
Borrowers have complained about nine-hour long wait times to get help, delayed and lost paperwork and miscalculated payments among other issues.
