Navient Reaches $198 Million Bankrupt Student Debt Discharge Deal

Navient Corp. agreed to a nationwide settlement worth $198 million with private student loan borrowers who say their bills should have been discharged in bankruptcy.

The settlement, filed in the US Bankruptcy Court for the Eastern District of New York on Friday following six years of litigation, provides broad relief to about 4,600 Navient student borrowers whose loans exceeded college tuition costs. The borrowers had alleged in a certified class action that the private student loan company violated their legal rights by continuing efforts to collect on debts that were discharged in bankruptcy.

Under the deal, Navient will forego collecting roughly $182 million worth of debt from the class members and pay $16 million to compensate class members and cover litigation costs. The company will also take steps to help remove the debts from borrowers’ credit reports.

“This settlement provides meaningful relief to thousands of borrowers who were illegally forced to pay back loan amounts that had been properly discharged in bankruptcy,” class attorney Adam Shaw of Boies Schiller Flexner LLP said in a statement. “At a time when our nation is wrestling with questions around student debt forgiveness and abusive lending practices, this agreement establishes once and for all a legitimate bankruptcy pathway for private student borrowers in financial distress.”

Navient said it supports updating bankruptcy law to allow for the dischargeability of all student loans after good faith periods of repayment. The company said it abides by all relevant bankruptcy rules and regulations.

The New York bankruptcy court settlement comes just weeks after Navient reached another nationwide bankruptcy court deal in Nebraska with borrowers who paid for unaccredited higher education programs. As part of that June agreement, Navient said it would cease efforts to collect on about $54 million worth of discharged private student loans and pay up to $28 million in damages.

The settlements reflect a broad shift in the understanding of higher education debts that can be summarily discharged in bankruptcy.

The case is Homaidan v. Sallie Mae Inc., Bankr. E.D.N.Y., No. 17-01085, motion filed 7/21/23.