Rivera v. Navient Sols., LLC

• Court: U.S. District Court — Southern District of New York
• Writing for the Court: LEWIS J. LIMAN, United States District Judge
• Decision Date: 19 August 2020
• Docket Number: 20-cv-1284 (LJL)
• Citation: Rivera v. Navient Sols. , 20-cv-1284 (LJL) (S.D. N.Y. Aug 19, 2020)
• Parties: MIGUEL RIVERA, Plaintiff, v. NAVIENT SOLUTIONS, LLC, Defendant.

MIGUEL RIVERA, Plaintiff, v. NAVIENT SOLUTIONS, LLC, Defendant.

20-cv-1284 (LJL)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

August 19, 2020

OPINION & ORDER

LEWIS J. LIMAN, United States District Judge:

Defendant Navient Solutions, LLC ("Navient" or "Defendant") moves, pursuant to Fed. R. Civ. P. 12(b)(6), to dismiss the complaint against it. For the reasons below, the motion to dismiss is granted in part and denied in part.

BACKGROUND

The sad events at the heart of this case arise at the intersection of the federal student loan program and the billing practices of a financial institution that serviced loans made under that program. Plaintiff Miguel Rivera ("Rivera" or "Plaintiff") is an indigent borrower of federally insured student loans. Dkt. No. 1 ("Complaint" or "Compl.") ¶ 1.¹ Navient, a servicer of the federally insured loans, serviced Rivera's student loans. Id. ¶ 2. Plaintiff's loans were issued by private banks under the Federal Family Education Loan Program ("FFELP"), 20 U.S.C. § 1087a et seq., 20 U.S.C. § 1071 et seq., and were governed by regulations issued as part of that program.²

A. The Federal Student Loan Program

Federally insured student loans are issued either directly from the federal government (the direct loan program) or, as in this case, from private banks under the FFELP. Compl. ¶ 17. Both types of federally insured loans can be subsidized by the government (i.e., the government pays interest during certain periods, such as when the borrower is in school) or unsubsidized (i.e., the borrower is responsible for interest payments throughout the life of the loans). Id. ¶ 18.

There are three ways in which a borrower who has difficulty repaying their student loan can be excused or relieved from making the full payment. First, the deferment regulations permit a borrower who qualifies under a strict set of rules to defer a payment for up to three years during the entire life of the loan. Id. ¶¶ 20, 23; see 34 C.F.R. § 682.210. Second, a forbearance may be given for any "acceptable reason" and permits a borrower to forbear from making a payment for a total of three years. Compl. ¶¶ 20, 24; see 34 C.F.R. § 682.211. Both ways require the borrower to pay the interest that has accrued during the time of relief after the period of forbearance or deferment has ended. Compl. ¶¶ 25-26. Thus, a borrower who forbears payment or defers an unsubsidized loan due to an economic hardship will be immediately confronted with the obligation to pay that accrued interest when her forbearance or deferment ends, making future repayments more difficult. Id. ¶ 25 (Notably, a borrower who defers a subsidized loan due to economic hardship is not confronted with this accrued interest because the government pays it.) Id.

Third, and in Rivera's case, a borrower may participate in the Income Based Repayment ("IBR") program, which is also referred to by Navient as an Income-Driven Plan ("IDR"). Congress created the program in 2008 to address the limits of forbearance and economic hardship deferment and provide a third option for borrowers struggling to repay their student loans. Id. ¶¶ 27-29. A borrower qualifies for the program if she is experiencing "partialfinancial hardship," meaning that she pays more than 15% of her disposable income towards student loans under the "standard" repayment plan, which gives a borrower ten years to fully repay her loans. Id. ¶¶ 33-35; see 20 U.S.C. § 1098e(b)(1); 34 C.F.R. § 682.215(a)(4). To this end, disposable income is defined as the difference between the borrower's annual adjusted gross income and 150% of the poverty line for the borrower's family size. Compl. ¶ 36; see 20 U.S.C. § 1098e(a)(3); 34 C.F.R. § 682.215. In essence, a borrower who participates in the IBR program elects to have her monthly student loan payment reduced to an amount no greater than 15% of her disposable income.

The IBR has substantial advantages over deferment and forbearance. Unlike forbearance or deferment, IBR can be used for up to 25 years (after which, if the borrower has made all IBR payments, the government forgives any outstanding balance). Compl. ¶ 31; see 20 U.S.C. § 1098e(b)(7). Nor does IBR saddle the borrower with as large an accumulated interest payment when she emerges from the plan. For a period of up to three years, if her IBR payment does not cover all accruing interest on a subsidized loan, the government covers the shortfall, relieving the borrower of the burden of unpaid accrued interest. Compl. ¶ 37; see 34 C.F.R. § 682.215(b)(4). Although the government will not pay accrued interest on unsubsidized loans, unpaid interest that accumulates while the borrower is in IBR does not earn interest. Compl. ¶¶ 38, 42. Thus, the debt burden will be lower than under deferment or forbearance.

As noted, the IBR program has no time limit. A borrower exits the IBR and accrued interest is capitalized only when: (a) she no longer has a partial financial hardship, i.e., when she has sufficient income to fully repay her loan under the standard repayment plan; (b) she fails to complete annual recertification requirements regarding income and family size; (c) she elects a different payment plan like forbearance or deferment; or (d) she completes 25 years of timelyIBR payments whereupon her remaining loan balance is forgiven and the government pays to the FFELP loan servicer or loan holder the interest and principal that has accumulated on the loan. Id. ¶¶ 40-41.

The IBR program also allows a borrower to make voluntary payments in excess of her required amount, known as a prepayment. Id. ¶¶ 47, 66. Her prepayment can be allocated in two ways, depending on its size. Under the first allocation method, if her prepayment is less than her regular monthly IBR payment, her prepayment is allocated first to interest, then late fees, and finally to principal. Id. ¶ 68; see 34 C.F.R. § 682.215(c)(3)-(4). Likewise, if her IBR payment is $0.00 and she pays some amount, her prepayment is allocated first to interest, then to late fees, and only finally to principal. The latter provision is particularly salient in this case, so an illustration is merited. If a borrower's payment is $0.00, but she makes a payment of $20.00 in an attempt to pay a late fee, that $20.00 is treated as a prepayment and it would only be applied as desired if she has already paid off all accrued interest. The late fee will go unpaid unless the prepayment first pays off accrued interest. This allotment method cannot be altered. Compl. ¶ 71.

For IBR borrowers with subsidized loans, the foregoing method can lead to a windfall for the servicer and loan holder. A servicer who allocates a prepayment to accrued interest is not required to return the subsidized interest payment for that loan and may retain the full amount of the subsidy. Id. ¶¶ 78-79. Thus, the servicer receives double payment—first from the borrower and then from the government. By contrast, the borrower does not benefit from her prepayment, which satisfies interest that the government is also paying on her behalf.

The second allocation method applies only when a borrower's prepayment equals or exceeds that of her regular monthly IBR payment; in such a case, the prepayment is creditedtowards the next payment of interest and principal (but not to late fees), and her next IBR payment is due in two months. Compl. ¶ 73; see 34 C.F.R. § 682.215(c)(3). This allotment method can be overridden by the borrower (and, for example, put the prepayment towards late fees), by "requesting" that the servicer not extend her next due date but instead apply the prepayment to late fees, or principal, or accrued interest. Compl. ¶ 75.

B. Navient's Billing Practices

Navient is a large servicer of federally insured loans.

Its monthly billing statement is a three-page document. The billing statement sent to Rivera for the month of June 2019 is representative. See Compl., Ex. A. The first page contains information on how much the borrower should pay. In particular, that page sets forth a twelve-field account summary with fields for "Past Amount Due," "Current Amount Due (+ any past due amount)," "Unpaid Fees," and "Total Payment Due." It is displayed as follows:

Image materials not available for display.

As shown, the first page also has a

window in the upper right corner

which discusses how to make a

payment conveniently and indicates

the amount due. It states: "You

have $[23.39] due [07/26/19]". At

the bottom of the page is a

perforated payment slip to be

detached and included with a

payment. It states in large bold

type: "Total Payment Due:

$[23.39]" without stating any other

amounts.

Id. at 1.

The second page contains tables for "Loan Information" as of the billing date, with lines for the current balance including unpaid interest, unpaid fees, and unpaid principal; a "Billing Period Summary" that indicates payments received and how the last payment was applied (including whether applied to interest, to fees, or to principal); and "Loan Details." Id. at 2. At the bottom of the box for "Loan Details," the second page on Rivera's billing statement states that the "Total Payment Due" and "Unpaid Fees" are $23.39. It also lists $0.00 for "Current Amount Due" and "Past Due Amount."

Image materials not available for display.

Id.

The third page contains the fine print including information about how payments are allocated, the answers to frequently asked questions, and important disclosures. Pertinent to this case, Navient states in 8-point type: "If you are on an Income-Driven Repayment (IDR) plan . . . [y]ou are not required to pay more than the present amount due to remain current during the IDR plan." Id. at 3. "Present amount due" is not defined anywhere in the statement.

Image materials not available for display.

Id.

Navient also enclosed the "Total Payment Due" in a "snapshot" email providing a "snapshot of your monthly statement" to borrowers who elected email delivery of their monthly statement. Id. at 4-5....