$198 million in relief is eventually being provided by student loan provider Navient Corp. (NAVI) to bankrupt debtors of private student loans.
Navient reached a settlement with borrowers who claimed the company unlawfully gathered on private student loans by fraudulently stating that the loans were not dischargeable in bankruptcy.
The arrangement includes $182 million in debt relief and $16 million in cash compensation for affected borrowers, as well as assistance in repairing their credit scores as a consequence of the illegal debt collection practices.
The settlement affects consumers with discharged private student loans from Navient. Notifications will be sent to eligible borrowers identified by Navient, and debt relief will be automatic.
The petition, which was filed for the first time in 2017, dispels the myth that student loan debt cannot be discharged in bankruptcy.
While federal student loans are usually exempted from bankruptcy discharge, not all private student loans are exempt if the recipient can demonstrate “undue hardship” — a very high standard that is rarely met.
Private Loans Dischargeable in Bankruptcy
Some private student loans, based to the Consumer Financial Protection Bureau (CFPB), are dischargeable in bankruptcy:
- Direct student loans that exceed the cost of attendance and are paid to the consumer.
- for non-accredited colleges, international schools, and non-accredited training and certificate programs.
- Loans made to cover tuition and living expenses incurred during preparation for the licensing exam, medical or dental residency, or other professional examinations.
- Loans for students enrolled less than half-time.
According to the CFPB, these categories of private student loans are treated similarly to other forms of unsecured consumer debt.
The CFPB accepts complaints from private student loan borrowers whose loans were discharged in bankruptcy yet the lender continued to collect on the debt.
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