NEW YORK (Legal Newsline) – A federal judge has given preliminary approval to a class action settlement in which the lawyers who targeted Navient Corporation say they’ll lose $5 million.
Objections will be due Sept. 11 and a final approval hearing will be held in October in a lawsuit that sought to blame Navient for not fully explaining the benefits of a certain loan forgiveness program to public employees struggling to make payments. But the case was severely wounded in 2019, and plaintiffs lawyers noted they won't come close to recovering the amount of money they put into it when they proposed the settlement.
The lawsuit was the brainchild of the American Federation of Teachers and private law firms, as well as the Student Borrower Protection Network – a group started by former federal officials who helped the Consumer Financial Protection Bureau to bring litigation against Navient a year earlier (it is still pending).
The case claimed Navient gave the teacher-plaintiffs bad advice regarding the Public Service Loan Forgiveness program. The law firms have also sued the Department of Education.
After 120 qualifying payments, student debt is forgiven for public service workers like teachers who are working full-time under the PSLF.
Navient, which is contracted by the Department of Education to advise borrowers struggling with payments, is alleged to have confused those borrowers as to whether PSLF debt-forgiveness would be available to them.
For instance, Navient judges its employees on how long they take to resolve a borrower’s concerns – a practice that allegedly steers its reps from suggesting complicated relief programs like PSLF.
The lawsuit was ambitious, seeking class certification nationwide of people who were eligible for PSLF and contacted Navient, as well as four sub-classes of the same in Maryland, Florida, New York and California.
But less than a year after it was filed, Judge Denise Cote pared all of that down to only the proposed New York class. Out of 15 causes of action, just one based on New York law survived Navient’s motion to dismiss.
“It is not enough that the borrowers incidentally benefit from Navient’s performance under the Servicing Contracts,” Cote wrote. “Such incidental benefit does not rise to the level of intent to permit enforcement.”
Cote used words like “meritless” and “puzzlingly” to describe some of the plaintiffs’ claims. The argument for breach of an implied warranty of authority “makes little sense,” Cote wrote.
She also found certain allegations weren’t made specifically enough to meet standards for fraud claims. Most plaintiffs could only narrow the timeframe of their calls with Navient to within a year, and even though plaintiffs said Navient’s records could show the specific instances, Cote said “It is of little consequence to this motion to dismiss that Navient may have maintained better records of these conversations than the plaintiffs did.”
A California plaintiff actually specified her calls down to the month, but the state law under which her claims arise does not cover loan servicers, Cote ruled.
Left standing was a claim for violation of New York Consumer Protection From Deceptive Acts and Practices Law.
The settlement admitted the plaintiffs saw difficulty in getting a class certified and that Navient would “vigorously” contest any motion for class certification outside of the settlement context.
The proposed class representatives will each get $15,000, in addition to the attorneys fees. Navient will also fund a $1.75 million cy pres award – a controversial practice in which organizations deemed to be tied to the case in some way receive a sort-of charitable donation from the defendant.
While it seems noble, it can also be used to boost the perceived value of a settlement and, in turn, increasing the amount of fees lawyers can request.
The $1.75 million cy pres award will go toward creating a new organization to provide education and counseling services to borrowers in public service.
There will be changes as a result of the settlement. Navient’s call center reps must now explore whether a borrower is eligible for the PSLF program, and the company will create template forms to send to borrowers who express interest in PSLF rather than forbearance, which defers payments while interest continues to rack up.
From Legal Newsline: Reach editor John O’Brien at john.obrien@therecordinc.com.