Nelnet Income-Driven Repayment Plan (IDR): Did it Help or Hurt Student Loan Borrowers?

Nelnet Income-Driven Repayment Plan (IDR): Did it Help or Hurt Student Loan Borrowers?

In June 2018, Domina Law Group filed a Class Action lawsuit against Nelnet, Inc. and other parties on behalf of borrowers who had their federal student loans serviced by Nelnet or any Nelnet subsidiary. The suit claims Nelnet’s Income-Driven Repayment Plan (IDR), hurt student loan borrowers rather than help them, and that borrowers incurred financial damages as a result.

Our legal team is currently reviewing potential claims from student loan borrowers with loans serviced by Nelnet (or any of its 50+ subsidiaries) any time from June 8, 2013 to the present, and for whom the following applies:

  1. Were enrolled in an income-based or Income-Driven Repayment Plan (“IDR plan”); and
  2. Timely submitted proof of income and an application to renew an IDR plan to Nelnet; and
  3. Eventually had an application approved; but
  4. Were nonetheless temporarily cancelled while the application to renew the IDR plan was being “processed.”

The two loan programs involved in Domina Law’s class action against Nelnet are the Federal Direct Loan Program, which are loans that originate directly from the U.S. Department of Education, and loans purchased by the Education Department pursuant to the Federal Family Education Loan Program.

Sound like your situation? If so, fill out our questionnaire today so we can determine if you benefit from our class action lawsuit against Nelnet:

What is an Income-Driven Repayment Plan?

An Income-Driven Repayment Plan (“IDR”) is intended to help student loan borrowers reduce the principal balance and interest on their loans – not hurt borrowers and saddle them with more payments, more debt, and the headache and hassle of having to deal with Nelnet.

Income-Driven Repayment Plans are designed to allow borrowers to benefit from affordable monthly payments based on their income, occupation, and family size. IDR plan participants can qualify for loan forgiveness after making a minimum number of on-time payments. Borrowers with IDR plans are also entitled to:

  • Annual renewals upon filing of an application with proof of income;
  • Notifications for when their annual renewal applications are due (from the loan servicer), which are made in writing at least 60 days prior to the deadline, and which inform borrowers about the risks of failing to timely renew their repayment plan (i.e. increase in monthly payments and capitalization of unpaid interest);
  • Upon submission of a renewal application and proof of income, protections that include: (1) not having their IDR plans cancelled while a renewal application is pending, (2) maintenance of the borrower’s monthly payment until the renewal request has been fully processed, and (3) processing of their applications within 10 days and prompt determinations of new monthly payment amounts.

IDR plans, when handled properly, can provide many positive advantages to student loan borrowers – which is why so many seek enrollment and renewals for such programs. Unfortunately, as the class action against alleges, it didn’t work that way for borrowers with loans serviced by Nelnet who experienced:

  • Delayed Approvals for IDR Plans
  • Overpayments to Nelnet
  • Forbearance Problems

Delayed Approval of Income-Driven Repayment Plan?

Domina Law alleges that because Nelnet Inc. and its subsidiaries make money by collecting monthly service fees for administering federal student loans, Nelnet has a financial interest to keep borrowers’ federal loans active for as long as possible in order to continue collecting monthly fees. It does not have an incentive to offer re-payment or re-structuring plans, or to assist borrowers to participate in IDR plans – simply because the faster you pay your loan(s) off, the less money Nelnet can make by servicing your loan.

Our class action lawsuit claims the Defendants (Nelnet and its subsidiaries) delayed the enrollment and renewal process, and improperly cancelled such plans in violation of federal law.

These actions increased costs for borrowers, and generated additional servicing fees for Nelnet by delaying borrowers’ eligibility for loan forgiveness. These are believed to be systemic practices affecting millions of borrowers.

Overpayment to Nelnet?

Domina Law alleges borrowers made overpayments to Nelnet which should be reimbursed.

Many borrowers made payments to Nelnet in excess of what was required by their Income-Driven Repayment Plans during the period of time after a monthly installment increased to the standard repayment amount, but before borrowers sought forbearance.

Forbearance Problems

Borrowers who lose the protections of an IDR plan, and who can no longer afford to make monthly payments pursuant to the standard repayment plan, may ask to have their loan placed in forbearance.

Forbearance is typically used when a borrower seeks relief from payment obligations due to financial hardship, as it allows the borrower to temporarily cease making payments during their period of hardship. However, forbearance delays any progress borrowers can make toward obtaining loan forgiveness, and any unpaid interest which accrues during forbearance is capitalized to the unpaid loan balance – this is a costly problem for borrowers.

Therefore, we also believe Nelnet improperly placed the loans of countless borrowers into forbearance since doing so increases the amount of fees Nelnet can collect by continuing to “service” loan(s) because it extends the time a loan remains in their system.

By improperly placing borrowers loans into Forbearance and / or suspending their loan forgiveness credit, Nelnet impeded borrowers’ progress toward loan repayment by suspending monthly payments and causing unpaid accrued interest to be “capitalized,” – which means Nelnet adds all the interest due into the borrower’s current principal loan balance, thus forcing borrowers to pay interest upon interest and interest upon the principal loan balance.

Think You Might Have a Case? Take Action Today!

If you or someone you know believe you may have a potential case against Nelnet, Domina Law Group wants to hear from you. You may be eligible to participate in our lawsuit and potentially recover financial damages.

Complete our Nelnet Questionnaire today so we can determine your eligibility:

More Nelnet Class Action Information: