[co-author: Stephanie Kozol]*
On January 11, Massachusetts Attorney General (AG) Andrea Joy Campbell announced a $1.8 million settlement with Nelnet, Inc. (Nelnet), one of the largest federal student loan servicers in the U.S., for allegedly sending written notices to borrowers about renewing income-driven repayment (IDR) plans that failed to meet certain regulatory requirements and, in some cases, failing to send the required notices altogether.
IDR plans generally set a borrower’s monthly payment amount based on the borrower’s level of income, with any remaining loan balance forgiven after a certain number of years of payments. Some IDR plans also offer valuable interest subsidies. Student loan servicers like Nelnet are legally required to help borrowers avail themselves of the benefits available under IDR plans by helping borrowers navigate the required enrollment and annual recertification processes, which includes submitting documentation to verify income and family size. Borrowers are also required to recertify each year in order to maintain eligibility for the IDR plan. Under federal law, Nelnet is required to, among other things, provide borrowers with at least 60 days’ notice of their deadline to recertify and explain the consequences for failing to do so (including the estimated increase in the monthly payment). Following an investigation into its notification practices, the Massachusetts AG’s office concluded that Nelnet failed to comply with these regulations between 2013 and 2017 in violation of the Commonwealth’s Consumer Protection Law.
Under the terms of the settlement, Nelnet is required to pay $1.8 million to the AG’s office, $1 million of which will be applied to the Commonwealth’s General Fund, and $800,000 will go to the Student Loan Trust Fund. Nelnet also agreed to certain business practice changes for any loans to borrowers in Massachusetts, including complying with all notice requirements and retaining copies of each written communication regarding IDR plans for the next three years.
Student debt relief and loan servicing reform were points of focus under former Massachusetts AG Maura Healey and, in announcing this latest settlement, AG Campbell signaled that these issues will continue to be a priority for her office. More broadly, this settlement is consistent with state AGs’ oversight of lending practices in their jurisdictions, and the use of consumer protection laws to bring enforcement actions against lenders who fail to fulfill their notification and information obligations to borrowers. Loan servicers should remain vigilant of current compliance practices with respect to notice obligations in light of heightened scrutiny at both the state and federal level.
*Senior Government Relations Manager
