In a suit filed in 2016 by Evan Haas and Michael Shabazi against Navient Solutions and Navient Credit Finance Corporation an interesting position was taken that myself and others have previously presented. While many assume incorrectly all student loans are protected from discharge in bankruptcy, that does not appear to be a factual statement. If a loan was not protected and discharged in bankruptcy then the continued collection of those loans would create a massive liability for Navient, refunds for consumers, and possibly legal awards and attorney fees.
The suit was filed by a number of attorneys and firms. One of those attorneys is our friend Austin Smith with Smith Law Group.
I’ve written about the underlying problems with many of the Navient, and other, private student loans. The suit filed in this case sums it up best by saying, “For the last ten years, Defendants have been engaged in a massive effort to defraud student debtors and subvert the orderly working of the bankruptcy courts. Specifically, Defendants have been originating and servicing dischargeable consumer loans and disguising them as non-dischargeable student loans. Defendants have done this in order to discourage debtors from seeking their constitutional right to relief under Title 11 and to allow creditors to continue to collect on discharged loans after a debtor’s bankruptcy. In order to effectuate this illegality, Defendants have appropriated a legal presumption for a class of debt that they know is not entitled to that presumption, thereby using the authority of the bankruptcy courts to cloak their fraud in the color of law and escape detection. Defendants are willfully and maliciously engaged in a pattern and practice targeted at some of society’s most vulnerable persons that they know defiles the proper workings of the bankruptcy process. Plaintiffs bring this action to enforce their rights and the rights of those similarly situated under law.”
From an open eyed look at the facts, Navient has known some of their private student loans were not protected in bankruptcy, even though they argued otherwise. In some written filings Navient told investors the loans were not Title IV loans and thus not protected.
The suit is primary about student loans that are non-qualified education loans and the suit seeks to have the following types of loans consumers included in a previous bankruptcy, eliminated private educational loans made to students attending non-Title IV accredited schools. If you’d like to search for a specific school, or verify whether a school is Title IV, you can do that here.
The suit sheds some additional light on these disclosures, “During the same time, student lenders were securitizing these debts for sale on the secondary market. Lenders were rightfully concerned that if they represented to investors that all private student loans were non-dischargeable in bankruptcy, sophisticated investors would easily enough discover the misrepresentation (based on a plain reading of the statute), and issuers would be liable for securities violations. Major lenders and underwriters thereafter included in student loan asset-backed securities’ prospectuses language warning investors that, pursuant to section 523(a)(8), only private loans made for qualified expenses were excepted from discharge.12 In addition, Navient has been warning shareholders in investor presentations that Career Training loans—i.e., one form of non-qualified loans made to students at unaccredited colleges and high schools — are dischargeable in bankruptcy.”
The loans targeted in this suit are non-qualified educational loans. And Navient wasn’t the only lender to make these kinds of loans.
“Non-qualified education loans” include:
- Private loans that were not made for “qualified educational expenses,” meaning that the funds were not used for a traditional four-year college. These loans include career training loans and loans made to students for some post-graduate programs such as:
- Airline Training School Student Loans
- Flight Schools Student Loans
- Tractor Trailer School Student Loans
- Culinary School Loans
- Bar Exam Loans
- Study Abroad Loans
- Caribbean/Foreign Medical School Loans
- Cosmetology School Loans
- Paralegal School Loans
- Heavy Equipment Operation School Loans
- Tutoring Loans
- K-12 Student Loans
- Medical Billing School Loans
- Medical School Residency Loans
- Dental School Residency Loans
- Art School Loans
- Fitness School Loans
- Holistic Health School Loans
- Mechanic School Loans
This current class action case allows people to joining the suit “who filed for bankruptcy protection since 2005 in the various Judicial Districts of the United States with educational loans originated and/or serviced by Defendants or their predecessors that do not meet the definition of a qualified education loan in IRC 221(d) and 11 U.S.C. § 523(a)(8) and were subject to attempts to induce payment on those loans after discharge.”
This lawsuit further alleges that debtors who have already repaid debts to Navient which should have been discharged in their bankruptcies may be entitled to a refund of all or some of the money they have repaid Navient since their bankruptcy discharges.
If you think you may be covered by the class action lawsuit you should contact one of the firms below and find out how you can participate.
You can read the suit filed here.