NEW YORK (Legal Newsline) – What was supposed to be a massive class action lawsuit orchestrated by private attorneys, nonprofits and former federal officials could be coming to a close with just a charitable donation and $500,000 to lawyers.
Navient Corp., the nation's largest student loan servicer, has already defeated 14 of the 15 claims made by lawyers representing teachers who claim the company failed to steer them toward a debt-forgiveness program.
The sides have now asked New York federal judge Denise Cote for final approval of a settlement, which would include a half-million for lawyers who claim their firms have spent close to 12,000 hours on the case and no money for public employees around the country who could have been class members.
At their normal rates, those firms say those hours would be worth nearly $5.9 million. They call their fee request a bargain because of the benefit to the public – a $1.75 million cy pres award that will go toward creating a new organization to provide education and counseling services to borrowers in public service.
Cy pres awards are controversial payments to organizations deemed to be tied to the case in some way. While it seems noble, it can also be used to boost the perceived value of a settlement and, in turn, increase the amount of fees lawyers can request.
Under the settlement, Navient’s call center reps would be required to explore whether a borrower is eligible for the Public Service Loan Forgiveness program, and the company would create template forms to send to borrowers who express interest in PSLF rather than forbearance, which defers payments while interest continues to rack up.
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 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 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 nine proposed class representatives will each get $15,000, if the settlement is approved.
Attorneys at Selendy & Gay in New York and Phillips, Richard & Rind in Miami say they initially interviewed more than 200 prospective class members.
As the case progressed, more than 350 people contacted the firms about participating. The firms also hired three experts to testify on the student loan industry as it battled the motion to dismiss that ultimately doomed most of the lawsuit.