Ballard v. Navient Corp.

• Decision Date: 31 March 2021
• Docket Number: CIV NO. 3:18-CV-121
• Parties: JILL BALLARD, et al., Plaintiffs, v. NAVIENT CORPORATION, et al., Defendants.
• Court: U.S. District Court — Middle District of Pennsylvania

JILL BALLARD, et al., Plaintiffs, v. NAVIENT CORPORATION, et al., Defendants.

CIV NO. 3:18-CV-121

UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF PENNSYLVANIA

March 31, 2021

(Judge Mannion)

(Magistrate Judge Carlson)

REPORT AND RECOMMENDATION

I. Introduction

In litigation the procedural posture of a case often defines the scope of substantive relief that may be afforded to a party. So it is here. The plaintiffs have filed a putative nationwide class action lawsuit on behalf of a class of student loan borrowers whose income-driven repayment program requests have allegedly been mishandled by Navient to their detriment and to the financial benefit of the defendants. These allegations are set forth in a 59-page, 180-paragraph amended complaint, which is accompanied by more than 160 pages of exhibits. (Doc. 29).

Notwithstanding this fulsome pleading, the defendants have filed a motion to dismiss the complaint, and to strike its class action allegations, alleging that the complaint is legally inadequate on a host of grounds. This motion has been comprehensively briefed by the parties, (Docs. 40, 45. 48, 51, 55), and was the subject of oral argument before the district court. (Doc. 53). We have now carefully considered the parties' voluminous submissions, but with our discretion cabined and confined by the well-pleaded facts set forth in the amended complaint, for the reasons set forth below we recommend that the motion to strike the class action allegations be DENIED. We further recommend that the motion to dismiss be GRANTED as to the tortious interference with contract claim but DENIED in all other respects.

II. Statement of Facts and of the Case

A. Substantive Allegations in the Plaintiff's Complaint

Our analysis of the instant motion is governed by the well-pleaded facts in the amended complaint. By way of introduction, the amended complaint explains that:

2. Student loan debt is now the largest category of non-housing related consumer debt in the United States with more than $1.34 trillion outstanding at the end of June 2017. The overwhelming majority of student loans in the United States are owned or guaranteed by the federal government through the U.S. Department of Education.

3. Since June 2009, Defendant Navient Corp. and its predecessors in interest, through their subsidiaries, Navient Solutions, LLC ("NSL") and Navient Solutions, Inc. ("NSI") acting in the capacity of agents on behalf of their principal, Navient Corp., have served as one of four primary servicers of federal student loan debt.

4. Loan servicers who contract with the Department of Education perform all tasks associated with loan repayment, such as collecting payments, responding to customer service inquiries, providing loan documents to borrowers, handling applications for loan deferment or forbearance based on financial hardship, and administering repayment programs designed to help borrowers effectively manage the increasingcost of higher education. These programs include the various Income-Driven Repayment Plans ("IDR plans") offered by the federal government, which provide qualifying borrowers with relief from student loan debt by adjusting their payments to a reasonably affordable amount based on their income, occupation, and family size. Borrowers enrolled in IDR plans can also apply to have their federal loans forgiven after a certain number of payments.

5. Navient Corp. and its predecessors in interest, and/or their duly appointed agents, NSL and NSI, received and continue to receive monthly servicing fees for the federal loans that they administer. Thus, Navient Corp. has a strong financial interest in keeping loans active for as long as possible to continue collecting these monthly fees. To that end, Navient Corp. and its predecessors in interest, through their duly appointed agents, NSL and NSI, delayed or failed to process IDR plan applications in order to generate additional monthly servicing fees. Because loan payments only count toward forgiveness once a borrower's application is processed, this practice extended the duration of loans in the various IDR programs, and injured borrowers who were required to make additional payments on loans that otherwise would have been forgiven at an earlier date.

6. Navient Corp. and its predecessors in interest, through their duly appointed agents, NSL and NSI, also improperly placed borrowers making timely loan payments into deferment or forbearance status-a designation typically reserved for situations where the borrower seeks relief from its payment obligations due to financial hardship. Borrowers who are in deferment or forbearance cannot make qualifying payments that count towards loan forgiveness under the various IDR plans, even though Navient Corp. continues to collect fees or servicing their loans. Thus, Navient Corp.'s abuse of the deferment and forbearance process, through its agents, NSL and NSI, improperly increased Navient Corp.'s revenue and extended the duration of the borrowers' loans in the various IDR programs. Moreover, at the conclusion of each forbearance, any accrued interest is "capitalized," or added to the borrower's principal loan balance, which may increase ethe borrower's debt considerably. Thus, Navient Corp.'s abuse of the forbearance process, through its agents, NSL and NSI, improperly increased the principal loan balance of its borrowers, putting them deeper and deeper into debt.

7. Navient Corp. had a financial incentive to increase its borrowers' loan balances because two of its subsidiaries -Pioneer Credit Recovery ("Pioneer") and General Revenue Corporation ("GRC") -provide collection and rehabilitation services on defaulted federal student loans. Under the current compensation structure for companies that provide such rehabilitation services, collectors earn nearly $40 in compensation for every $1 in cash recovered through certain rehabilitations.

(Id., ¶¶ 2-7).

According to the plaintiffs' complaint, Navient has a documented, and widespread, history of mishandling student loan IDR requests and accounts and has been the subject of thousands of complaints over its deficiencies in the processing of these accounts. (Id., ¶¶ 9-14).

Cast against this factual backdrop, the plaintiffs' amended complaint sets forth in their pleading a series of detailed substantive factual averments. (Id., ¶¶ 43-86). These averments explain that, with the rising cost of college education, students seeking higher education opportunities have been compelled to increasingly rely upon student loans to finance their education. (Id., ¶¶ 43-44). These loans then come with an array of repayment plans.

Burdened by academic debt, many student loan borrowers cannot afford the monthly payments prescribed by standard repayment plans and must turn to various income-driven repayment plans. (Id., ¶¶ 45-47). Such income-driven repayment plans, or IDRs, must be renewed annually by the student, and the failure to timely renew the IDR can result in increased payments and added interest expense. (Id.) Inorder to assist students loan borrowers in avoiding these financial-penalties, student loan servicers are required to timely process IDR requests within 10 to 15 business days. (Id., ¶ 48). In contrast to these IDR plans, student loan borrowers may also be placed into a temporary loan forbearance status by loan servicers. Such temporary forbearance is more lucrative for the loan servicer, according to the plaintiffs, but has financial disadvantages for the borrowers. (Id., ¶ 49).

The plaintiffs allege that Navient's financial incentives for mishandling student IDR applications and accounts stem from the structure of its contract with the Department of Education. (Id., ¶¶ 50-55). That contract compensates Navient on a per unit basis for the student loan accounts it manages, and pays Navient at a higher rate for accounts that are in forbearance, thus creating incentives to place accounts in forbearance status and minimize the number of accounts which are forgiven or discharged. (Id.)

The amended complaint then details the experience of the three named plaintiffs with Navient at their loan servicer. (Id., ¶¶ 56-86). In each instance it is alleged that Navient mishandled the named plaintiffs' IDR account by failing to meet processing deadlines, improperly placing accounts in forbearance status, erroneously capitalizing interest payments, and failing to acknowledge and process timely student borrower IDR renewal applications. (Id.)

B. The Plaintiffs' Class Action Averments

Having lodged these substantive allegations, the amended complaint then sets forth a series of class action averments. (Id., ¶¶ 87-98). The class action allegations state that the injuries suffered by the named plaintiffs due to the actions and inaction of Navient are emblematic of a broader nationwide pattern of IDR application and agreement mishandling. The complaint notes that there have been thousands of complaints by student loan borrowers that Navient has failed to timely process applications and IDR renewals and that Navient is alleged to have improperly placed tens of thousands of student loan borrowers into forbearance status, to their financial detriment but to Navient's benefit. Specifically, the complaint alleges that the following four classes of plaintiffs exist in this case:

NATIONWIDE CLASS

All individuals with federal student loans serviced by Navient Corp., NSL, NSI, and/or their predecessors in interest, who, at any time on or after a date six years prior to the filing of this action, 1) were enrolled in an IDR plan, and timely submitted a request to renew the plan, which was nonetheless cancelled due to Navient's failure to process the renewal prior to the plan's expiration, or 2) submitted a request for enrollment in an IDR plan that was not processed within 25 business days.

CALIFORNIA CLASS

All California residents with federal student loans serviced by Navient Corp., NSL, NSI, and/or their predecessors in

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