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Student Loan Class Action Proceeds Against Nelnet Companies

Student Loan Class Action Proceeds Against Nelnet Companies

An Order issued by the United States District Judge John M. Gerrard, Lincoln, Nebraska cleared the way for claims by student loan debtors against the nation’s largest student loan service agency, Nelnet.

Five (5) students, Andrew Johannson of Illinois, Heather Porter of Missouri, John Pearce of Texas, Linda Stanley of Colorado and Anetra Faison of Michigan contend that loans they obtained pursuant to government programs were maladministered by the Nelnet companies. All the students qualified for repayments under the terms of Income-Driven Repayment Plans, known as IDR Plans. The IDR Plans are available for one year at a time and must be renewed or recertified with new income information annually. The IDR Plans must be processed timely by the service provider for the student to be able to qualify for ongoing payments that match the student's ability to pay and are income-based payments for the purpose of IDR plans. Johannson, and the other plaintiffs, alleged they were unable to afford payments, often well over $1000 per month, which would be required under the Standard Repayment Program without IDR adjustments. Johannson, and the other plaintiffs, contend that they qualified for the IDR Plans, but Nelnet failed, or refused, to process renewal applications. In some instances, modifications based on changes in income could have helped them qualify for better IDR Plan circumstances.

Johansson and his co-plaintiffs contend Nelnet violated many federal regulations. Most prominent are:

  1. Failure to maintain the borrower’s scheduled monthly payment amount, and recertify applications timely.
  2. Failure to process IDR Plan applications timely.
  3. Adding interest to principal and thereby increasing the principal owed, driving the interest cost upward contrary to prohibitions against adding interest to the principal balance (a process called “capitalization of interest”).
  4. Failure to process applications promptly.

The Plaintiffs contend Nelnet’s practices were abusive. They assert claims in a series of classes or categories. These include:

  1. Persons who claimed they had contracts that were enforced, but were violated by Nelnet.
  2. Persons who relied on Nelnet representations about submissions, dates, and were misled.
  3. Certain Plaintiffs also assert claims for violations of state law in Illinois and Colorado. These claims would affect only borrowers in those states, or with loans governed, because of the loan history, by state law in those states.
  4. The students contend that they are third-party intended beneficiaries of contractual relations between Nelnet and the US Department of Education (“DOE”). Nelnet's failure to fulfill duties to DOE are, they contend, violations of duties owed to them as well.

February 2021 Forbes reported that student loan debt had reached a record $1.7 trillion in the United States. Johannson and his co-plaintiffs, represented by Dan Edelman, Cassandra Miller and Anthony Fiorentino in Chicago, and Dave Domina in Omaha, seek relief for the class of persons Nelnet allegedly impacted adversely.

The level of student debt causes persons to postpone marriage, childbearing, homeownership, and spending for other basic investments and needs that drive the American economy. The student debt is a burden not just to the borrowers, but to everybody in society.

Forbes reported that the student loan debt is about $739 billion greater than total US credit card debt. “Of course, former students have credit cards and credit card debt too,” Domina commented.

Nelnet faces other litigation and has been roundly criticized for its servicing of student debt. The website, reports that Nelnet, based in Lincoln, services loans for over 5 million people. In a survey by the website in 2018, of major student loan service companies, complaints about Nelnet led the pack. Responders to the survey rated Nelnet a 3.3 out of 5. Overall, an average of 66%. Student Johansson’s lawyer, Dave Domina noted, “Nelnet is in the education finance business. It should know that a score of under 70% is an F.”

Customer service, failure to recertify income pursuant IDR plans, and lousy communication, are the most frequent complaints made against Nelnet.