Navient Lawsuit – What’s the Latest Situation?

Navient Lawsuit - What's the Latest Situation?

Navient Lawsuit

We know there are a lot of people asking the same question: What’s going on in the Navient Lawsuit? Although there has been no rapid progress since the last known developments, we wanted to list some of the developments that you are curious about.

Income-Based Repayment Plans

The scholarly arguments for greater student loan forgiveness have been partially successful. Although the Bankruptcy Code continues to restrict student loan discharge, debt forgiveness has been advanced through recent changes to federal student loan programs known as income-based repayment plans (IBR), introduced in 2007 through the College Cost Reduction and Access Act. Under IBR, federal student loan payments are capped at a percentage of the student debtor’s income, typically around 10%. The payment decreases as the number of people in the debtor’s household increases. After the student debtor makes all payments for a number of years, any remaining debt is forgiven.

Consistent with Professor Warren’s views, IBR is more generous to student debtors who work in the public sector. Public sector workers need only work and make payments for ten years prior to forgiveness of the balance of their federal student loans, whereas private-sector workers must work and make payments for twenty to twenty-five years. If the debtor’s income rises so that payments would be lower under a traditional (non-IBR) ten-year repayment plan, debtors may instead make the lower traditional ten-year payment.

IBR is less attractive than discharge in bankruptcy. IBR debt forgiveness may result in taxable income to student debtors who work in the private sector, whereas a bankruptcy discharge is not treated as income. Whereas a Chapter 7 bankruptcy discharge would provide immediate relief, and a Chapter 13 bankruptcy discharge would provide relief after a three-to-five-year period of income-based repayment, IBR requires ten to twenty-five years of repayment. The lengthy repayment period under IBR may mitigate moral hazard. IBR is formulaic, and may, therefore, be less expensive to administer and more consistently applied than the “undue hardship” standard in bankruptcy.

Risk-based pricing is compatible with IBR and could incorporate the risk of loss due to borrowers entering IBR. To the extent that IBR is intended as a back-door wage subsidy for public service workers, losses from IBR for students entering public service could be excluded from risk-based pricing.

Src: Academia

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