Nelnet Class Action Says Income-Based Repayment Plans Cancelled

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Student loan servicer Nelnet has been hit with a class action lawsuit alleging the company improperly cancelled income-based repayment plans for borrowers.

Lead plaintiff Jessica Olsen claims in the Nelnet student loan class action lawsuit that her income-driven repayment plan was cancelled before the deadline for her to renew it had passed.

The plaintiff says now she will be on the hook for thousands more than she expected.

“Students have increasingly come to rely on student loans to pay for their higher education,” states the Nelnet class action. “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. They come with an array of repayment options to fit a student borrower’s short-term and long-term needs.”

Nelnet, along with several other loan servicers, have contracted with the federal government to administer the repayment programs for federal student loans.

Income-based repayment plans allow low income borrowers to base payments on their income. This leads to a lower payment than the standard repayment plan and, in some cases, no payments.

Low income borrowers often qualify for student loan forgiveness programs based on participation in an income-based repayment plan.

According to the Nelnet student loan class action lawsuit, thousands of borrowers like Olsen have been subject to improper cancellation of their income-based repayment plans, leading to shocking increases in their loan balances and huge increases in their monthly payments. These borrowers also become ineligible for student loan forgiveness as well.

The Nelnet class action lawsuit alleges that the company, as a matter of policy, improperly urges borrowers to put their loans into forbearance. Forbearance allows a borrower to stop payments for a time, usually during financial hardship; however, any interest accrued is added to the principal after the period is up.

According to the student loan class action lawsuit, Nelnet has nefarious reasons for this.

“[Nelnet] received and continue to receive monthly servicing fees for the federal loans that they administer. Thus, Defendants have a strong financial interest in keeping loans active for as long as possible to continue collecting these monthly fees. To that end, [Nelnet] failed to properly process IDR plan applications, or delayed the processing of these applications, in order to generate additional monthly servicing fees,” the Nelnet class action states.

“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 a sooner date.”

The Nelnet loan class action lawsuit goes on to allege that Nelnet’s practices devastate student loan holders who are serviced through the federal program because of the following issues:

• The extension of their loan repayment period
• Additional accrued interest on the principal balance of their loans for unnecessary deferments or forbearance
• Improperly calculated monthly payments
• Additional fees for unnecessary services

According to the Nelnet student loan class action lawsuit, thousands have complained to the Consumer Financial Protection Bureau over Nelnet’s practices.

“Defendants have violated federal and state law in connection with their servicing of federal student loans in that they failed to promptly process borrowers’ requests to renew their IDR plans, unlawfully cancelled borrowers’ income-driven payments due to processing errors, unlawfully capitalized interest that accrued on borrowers’ accounts, and unlawfully applied forbearances to borrowers’ accounts during processing delays,” alleges the Nelnet student loan class action lawsuit.

The Nelnet class action lawsuit seeks to represent a nationwide Class of federal student loan holders serviced by Nelnet, along with an Oregon subclass.

The lead plaintiff is represented by David Domina of Domina Law Group, Daniel A. Edelman, Cathleen M. Combs, James O. Latturner, Tara L. Goodwin, Frances R. Green, and Cassandra P. Miller of Edelman Combs Latturner & Goodwin LLC, and Anthony Fiorentino of Fiorentino Law Offices LTD.

The Nelnet Student Loan Class Action Lawsuit is Olsen v. Nelnet Inc., et al., Case No. 4:18-cv-03081-RGK-MDN, in the U.S. District Court for the District of Nebraska.