Student Borrowers Sue Navient for Denying Discharge Applications Despite Evidence of School Misconduct
New lawsuit highlights the dangers of gutting oversight and allowing private lenders to profit off students and taxpayers with impunity
Cook County, Illinois (February 26, 2025) – A student borrower in Illinois filed a proposed class action lawsuit today against Navient for denying student loan discharges where there is evidence of fraud. The lawsuit seeks relief for Illinois borrowers who applied for loan cancelation through Navient’s “School Misconduct Discharge Application,” which it quietly released in early 2024. The application allows borrowers who experienced misconduct by their school to apply directly for discharge of private loans, marking a long overdue recognition of borrower rights. As awareness of the application increased, many began receiving arbitrary denials with no explanation.
The complaint, filed in the Circuit Court in Cook County, Illinois, states that the denials are unfair, inconsistent with widely available evidence, and violate consumer protection laws. Borrowers are demanding that Navient give them a fair review process and compensate them for disregarding their legal rights by denying valid applications at schools with known misconduct.
The lawsuit comes during a time when the federal government has taken significant steps to lessen oversight of the private market, including by weakening the power of essential agencies such the Consumer Financial Protection Bureau (CFPB).
“Student borrowers have legal rights to loan cancellation when there is evidence of fraud, and Navient has not been fulfilling its duty under the law,” said Eileen Connor, President and Executive Director of PPSL. “Navient knew from the day it made the loans that it was putting profit above students. This case is a prime example of what happens when the private market is empowered to profit off consumer fraud. Our clients are now forced to stand up for their rights at a time when the federal government has vacated this critical oversight role, and we will ensure that these denials cannot stand.”
Plaintiff Amanda Luciano attended the International Academy of Design & Technology (IADT), a notoriously predatory for-profit school owned by Career Education Corporation (CEC), in 2006. For decades, she has suffered financial harm and distress from her private student loans, despite receiving nothing of value for them. Unprompted, Navient sent her its new School Misconduct Discharge Application in February 2024. Luciano submitted the form, detailing IADT’s and CEC’s well documented record of consumer fraud – then received a form denial with no explanation.
“When I got the Navient application I was so excited, assuming they knew there were issues with my school and I must qualify. Being denied was devastating, especially with no explanation or indication of what steps I could take to appeal the decision,” said plaintiff Amanda Luciano. “I can see now that the process was rigged from the start and not based on actual evidence of school misconduct. These schools wronged us and committed fraud, and Navient needs to be held accountable for disregarding the rights of borrowers like me who are seeking justice on our student loans.”
“Navient refuses to even explain to borrowers like Ms. Luciano why their loan discharge requests are being denied,” said Daniel J. Schneider, Supervisory Attorney at Legal Action Chicago and co-counsel for Ms. Luciano. “People who were defrauded by predatory schools have a right to relief, and Navient’s arbitrary denials aren’t just unfair, they’re unlawful.”
Although private student loan borrowers have contractual protections against the repayment of loans based on school or lender misconduct, lenders have failed to honor borrower defense rights on private student loans by failing to offer a clear path or process. PPSL has worked alongside borrowers for years to create a pathway for private student loan borrowers to receive relief, including by filing several lawsuits against Navient on behalf of individual borrowers and highlighting the issue to regulators.
The Federal Trade Commission’s 1976 rule concerning the Preservation of Consumers’ Claims and Defenses (or “Holder Rule”) ensures schools and colleges under the FTC’s jurisdiction cannot accept the proceeds of a student loan unless the loan contract contains a specific term that allows the student to raise school misconduct as a defense to repayment of the loan. For years, student borrowers who raised such defenses were told they had no such rights. A report released in December 2024 by the recently shut down Consumer Financial Protection Bureau highlighted how servicers “misled borrowers about their right to challenge their loans and failed to properly consider most borrowers’ challenges to their loans based on school misconduct.” PPSL also supported US Senator Elizabeth Warren and members of Congress in a letter to the CFPB and FTC urging an investigation into Navient, based in part on PPSL’s memo in response to Navient’s blatant disregard for borrowers’ rights.
For more information about the case, visit case page.
Additional details on private student loans and resources can be found at ppsl.org/privateloans.
About The Project on Predatory Student Lending
The Project on Predatory Student Lending (PPSL) is the leading legal organization representing student borrowers against predatory for-profit colleges and the policies that enable institutions to exploit and cheat students. PPSL uses bold, strategic litigation and advocacy to demand accountability in the higher education space and influence policy solutions to create a more just and affordable education system. PPSL represents more than one million student borrowers and its work has resulted in cancellation of more than $22 billion of fraudulent student loan debt.
About Legal Action Chicago
Legal Action Chicago is a not-for-profit organization that works to improve the lives of and removes obstacles for people in poverty in Chicago and beyond through class action litigation and policy advocacy. It is a partner organization of Legal Aid Chicago, the largest free civil legal services provider in the Midwest.
