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  5. Elizabeth Warren is asking a major student-loan company to cancel debt for borrowers with 'decades-old predatory private' loans. Here's how.

Elizabeth Warren is asking a major student-loan company to cancel debt for borrowers with 'decades-old predatory private' loans. Here's how.

Ayelet Sheffey   

Elizabeth Warren is asking a major student-loan company to cancel debt for borrowers with 'decades-old predatory private' loans. Here's how.
  • Sen. Elizabeth Warren led a letter urging Navient to cancel predatory private student loans.
  • The letter cited the Holder Rule, which permits relief for borrowers with fraudulent loans.

A major private student-loan company is leaving the servicing industry. But before that happens, a group of Democratic lawmakers want it to give some borrowers debt relief.

On Wednesday, Sen. Elizabeth Warren led eight of her Democratic colleagues in sending a letter — first reviewed by Business Insider — to Navient's CEO David Yowan, requesting that the company cancel "decades-old predatory private student loans" using a consumer protection law established by the Federal Trade Commission.

In January, Navient announced it would be outsourcing servicing of its private loans and commercially held loans in the Federal Family Education Loan program to MOHELA — one of the largest federal student loan servicers. This transition is expected to impact about 2.7 million borrowers, and the Democratic lawmakers wrote in their letter that "a large portion of these loans are eligible for cancellation."

That's because, the lawmakers wrote, some of those borrowers may have attended schools the Education Department later determined were fraudulent by misrepresenting their programs and pushing students to take on more debt than they could afford. While the Education Department has canceled federal student loans for some borrowers using a process known as the borrower defense to repayment, those who may have attended the same fraudulent schools but had private loans held by Navient did not get the same relief.

But there might be an avenue to still get those borrowers debt cancellation. Warren and her colleagues pointed to the Holder Rule — a consumer protection tool allowing the borrower "to cancel existing debt if a school fraudulently induced the student to enroll and had some relationship with the lender," per the Minnesota Attorney General's office.

Prior lawsuits have pointed to Navient's relationships with some for-profit schools. In 2022, Navient reached a $1.7 billion settlement with 39 states after being accused of working with for-profit schools to hand out private loans to students with high default rates. However, the settlement only included borrowers who were in default for at least seven consecutive months before June 2021. Navient did not admit any wrongdoing, and it has a process for borrowers to apply for relief. The group of lawmakers wants that process automated.

"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," they wrote.

The lawmakers are requesting that this relief happen before Navient outsources its servicing to MOHELA. Additionally, they requested Yowan provide additional information by April 29, including the number of borrowers the company services who attended for-profit schools, how many borrowers have applied for relief using Navient's application, and how the company takes into account the Holder Rule.

While it's unclear how any debt cancellation would impact the transition of servicing responsibilities from Navient to MOHELA, Navient previously said in its announcement that the two companies would "work toward ensuring a seamless transition in the coming months and providing customers with uninterrupted servicing of their loans."

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