The federal government and the Washington state Attorney General sued Navient, which was formerly part of Sallie Mae, accusing them of cheating borrowers out of their repayment rights. According to a CNN Money news report, another lawsuit filed by the Illinois Attorney General named both Navient and Sallie Mae. Officials with the Consumer Financial Protection Bureau, which brought forth the lawsuit, say Navient cut corners and deceived consumers at every stage of repayment in order to save on operating costs. Navient is currently the largest student loan servicer in the country, handling upwards of 12 million accounts.
Unethical Business Practices Alleged
To put it another way, one in four student loan borrowers go to Navient to service their loans. These borrowers then send monthly checks to Navient to pay off their loans. The allegations, that go back more than six years, claim that Navient steered struggling borrowers toward paying more than they had to and misallocated their payments when made across several loans. Sometimes, the company also inaccurately reported that borrowers had defaulted on their loans, causing their credit score to become damaged. Navient has denied these allegations.
The government also alleges that Navient made it more difficult for borrowers to enroll in an income-driven repayment plan, which could help reduce their monthly payments, particularly if they have a hard time paying off their loans. Instead, Navient encouraged borrowers to stop making payments, which helped Navient by reducing paperwork and using less manpower, but caused borrowers to rack up more unpaid interest.
What’s more, the government accuses Sallie Mae of putting borrowers into expensive subprime loans, which it knew were going to fail. The state lawsuits are seeking debt relief for borrowers who took out these subprime loans. All lawsuits are seeking civil penalties and money for affected borrowers harmed by the companies’ servicing practices.
What You Need to Know about Student Loans
Statistics show that the average student loan debt at graduation has been steadily growing over the last two decades. A CNN analysis shows that in 1993-94, about half of bachelor’s degree recipients graduated with debt, averaging a little more than $10,000. In 2016, more than two-thirds of college students graduated with debt and their average debt at the time of graduation was about $35,000, more than tripling over 20 years.
Why is this happening? Student loan debt is increasing because government support for higher education has failed to keep up with steep hikes in college costs. The burden of paying for college has shifted from federal and state governments to families. A recent Wall Street Journal report stated that about 40 percent of student loan borrowers are not making their payments. Not many realize that not making these payments can become extremely problematic. It’s definitely going to affect your credit score. This could raise red flags when you open new lines of credit. You may also be charged higher interest rates when you purchase a new car or home.
If you don’t pay, loan companies might start garnishing your wages or bank accounts without a judgment. This essentially allows a creditor to take all the money in your bank account or take a portion of your paycheck until the debt is paid off. Needless to say, this puts enormous financial strain on an individual and his or her family.
Does a Bankruptcy Erase a Student Loan?
A student loan does not go away with bankruptcy. A bankruptcy can help erase some debt such as credit card payments and medical debt. While it might not be entirely possible to easily get rid of your student loans in bankruptcy, you may have options under bankruptcy law to help manage your payments. When you have an income-driven plan, your payment is generally based on a percentage of your income. This is often a good route to take and can help reduce debt burdens for those who borrowed a substantial amount of money to get a college education.
Filing Chapter 7 bankruptcy may be an option for those who can’t afford to pay their student loans due to significant amounts of other debts. For those who qualify, a Chapter 7 can also help get rid of other debts such as medical bills, house or car loans. However, if you have private student loans and if those lenders will not work with you, you ay be able to file Chapter 13, which gives you the option of repaying the loan over three or five years.
In order to make use of this option, you will need to have steady income. The plan payments will have to be approved by the court. The amount of the payment will depend on your income and expenses. The advantage of using the Chapter 13 option is that it gives you time to handle the rest of your debt without the risk of student loans forcing down your credit score.
Understand Your Options
There are a number of options available to repay your student loans without it affecting your credit score. Check with your lender regarding your options. However, as we saw in this particular case with the allegations against Navient, lenders may not always be truthful or look out for your best interest. You need to watch out for scams that try to take advantage of desperate and vulnerable individuals who are struggling to repay their loans.
Don’t trust websites that might look legitimate or advertise student loan forgiveness. If it seems too good to be true, then it probably is not a legitimate option. The U.S. Department of Education’s website also offers a lot of useful information about student loans and repayment options.
If you have more questions and are looking for more answers, please contact an experienced bankruptcy lawyer Scottsdale who can help you determine if filing Chapter 7 or Chapter 13 bankruptcy is right for your particular situation and circumstances. Call us at 480-745-1770 to find out how we can help you.