In January 2023, education loan servicing company Navient reached a settlement with attorneys general from 39 states that will cancel $1.7 billion in private education loan debt. On top of that, Navient will provide $95 million in restitution to roughly 350,000 federal education loan borrowers.
The money is expected to resolve six lawsuits, where the Consumer Financial Protection Bureau (CFPB) and attorneys general alleged that the company had involved in abusive practices. In particular, Navient was accused of providing private student education loans to more than 66,000 borrowers who it knew would find it difficult to repay the debt. The loan servicer also steered federal loan borrowers toward forbearance instead of more fitting relief options like Public Service Loan Forgiveness and income-driven repayment plans.
For many college students, during school without student loans isn't a choice. But you will find situations where it may be riskier to defend myself against student education loans. To prevent these situations, it is best to prioritize federal loans, avoid for-profit universities and educate yourself about potential red flags. Here's how:
Prioritize Federal Student Loans
While Navient was charged with participating in some abusive practices toward its federal student loan borrowers, the bulk of its settlement involves forgiving $1.7 billion in private student loan debt.
That's not saying that private student loans really are a scam. Actually, most private student loan companies are legitimate. But for both undergraduate and graduate students, federal student education loans provide more relief choices for borrowers who've trouble with checking up on their payments.
Also, federal loan interest rates are standardized, if you don't have great credit, it's not necessary to be worried about dealing with high-interest private loans that may put more stress on your budget.
Avoid For-Profit Universities
The CFPB and attorneys general declare that Navient issued high-interest loans to students who were attending predatory for-profit colleges. Based on the Center for Analysis of Postsecondary Education and Employment, for-profit schools have a tendency to charge higher tuition than public universities and have only a 35% completion rate, in contrast to 65% at public four-year universities and 76% at private four-year institutions.
Critics have accused for-profit universities of hiring unqualified faculty, enrolling unprepared students, using manipulative sales tactics and much more.
The U.S. Department of Education provides federal loan forgiveness in a number of instances for borrowers who attended for-profit colleges underneath the Borrower Defense to Repayment program. And students who attended these schools possess a disproportionate share of federal student loan defaults.
All that considered, both federal and private student education loans may pose high risk inside your future if you use these to attend a for-profit college versus a public or private four-year university.
Carefully Browse the Loan Terms
As previously mentioned, federal student education loans provide several protections for borrowers, but private education loan terms can differ by lender. As such, it's important to make sure you read through all of the conditions and terms of a loan before you decide to accept it.
Watch out for things like forced arbitration clauses, which limit your rights when the lending company violates what the law states or the contract. Also, make sure you know what types of recourse you do have if you have a dispute together with your lender.
Read Borrower Reviews
You can't choose your federal student loan servicer when your loans are first disbursed, but you can choose a replacement with the Direct Loan Consolidation program. And if you're considering private student loans, you get to choose which lender you choose to use.
In either case, take the time to see reviews from current and former borrowers utilizing a given servicer or lender. If the company you've been assigned or are intending to apply with has a good reputation for poor practices in how they cope with borrowers, you may want to look elsewhere.
Also, do an online search to find out if the servicer or lender has been sued by federal or state regulators. While individual customer reviews provide anecdotal proof of misconduct, regulatory action can give you some insight into widespread illegal practices that the servicer has engaged in consistently.
Learn About Borrower Relief Options
If you're having a difficult time together with your education loan payments, don't rely on your lender to teach you about your options. This is an unfortunate reality, but regulators have repeatedly called out and sued federal student loan servicers for engaging in a few of the same behaviors that Navient is now providing restitution for.
Instead of relying on your servicer, read up on what choices are open to you and consider your situation to look for the best course of action.
If you've private student education loans, relief choices are scant, however, many lenders provide forbearance of some kind. If you have federal student loans, learn about income-driven repayment plans, extended consolidation plans, loan forgiveness, repayment assistance programs, and much more.
The more you understand by what you can do if you are struggling, the easier it will be to spot bad or perhaps illegal practices when you come across them.
Take Steps to Reduce Your Reliance upon Student Loans
The best way to avoid long-term struggles with student loan debt is to reduce your reliance on these to purchase school. There are lots of ways to stay away from student education loans, including:
- Apply for scholarships through your school and through private organizations; use search engines like google like Scholarships.com and Fastweb to locate options among countless opportunities.
- Fill out the Free Application for Federal Student Aid (FAFSA) to ascertain if you be eligible for a grants, which, like scholarships, you generally don't have to repay.
- Attend a less expensive school to take down immediate and ongoing expenses.
- Work while you're in class with a part- or full-time job that you find on your own or through the federal work-study program.
- If you're a graduate student, look for fellowship and assistantship opportunities that may offer you some income as you do work associated with your field of study.
Good Credit Can Help You Secure a great Deal
If your credit is within bad shape, you're more likely to have a problem finding favorable financing to assist pay for your higher education. This is also true thinking about taking out a private student loan.
Check your credit rating to obtain an idea of how healthy your credit report is, and review your credit report to ascertain if there are any problem areas you are able to address. The entire process of building and looking after good credit can take time, but the savings and peace of mind are very well worth it.