Navient must face broad borrower lawsuit over payment allocation

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Offices of Navient in Wilmington, Delaware, June 9, 2021. REUTERS/Andrew Kelly

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  • Motion to dismiss proposed class action denied
  • Borrowers allege student loan servicer misapplied payments to prolong debt

(Reuters) - A federal judge in New Jersey said student borrowers can pursue a lawsuit alleging Navient Corp fraudulently misallocated payments to increase the life of potentially millions of student loans.

U.S. District Judge Susan Wigenton on Thursday denied Navient's motion to dismiss the lawsuit, saying the borrowers who filed the proposed class action last year had valid claims under New Jersey's anti-fraud statute and the consumer protection laws of Florida, New York and New Jersey.

Lisa Simonetti of Greenberg Traurig, who represents Navient, and Xavier Bailliard of Kranjac Tripodi & Partners, who represents the proposed class, did not immediately respond to requests for comment on Friday.

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The lawsuit was filed in June 2020 by nine borrowers whose loans were serviced by Navient. They allege the company disproportionately applied payments to interest rather than principal, incorrectly capitalized interest and steered payments to lower interest rate loans.

Navient's website and the fact that the company does not give borrowers an amortization schedule hinders borrowers' ability to understand or address those issues, they said.

The lawsuit seeks damages on behalf of a proposed class of all those in the U.S. who have ever borrowed from or had loans serviced by Navient.

The company moved for dismissal in December, calling the complaint devoid of any alleged misrepresentation in connection with the way payments were allocated and lacking particular facts about how its procedures affected the plaintiffs.

The lender said the class allegation should be dismissed because the claims would be affected by the terms of each individual loan. Navient also said the borrowers' claims for breach of fiduciary duty could not stand because courts have found loan servicers are not fiduciaries.

In her ruling on Thursday, Wigenton said that the specific allegations including date and dollar amount of the allegedly misapplied payments were enough to state claims for fraud and violation of the consumer protection laws.

It was too early to consider whether the lawsuit can proceed as a class action, she said.

However, the judge agreed that Navient owed no fiduciary duty to the borrowers.

The case is Manetta et al. v. Navient Corp et al., U.S. District Court, District of New Jersey, No. 20-cv-07712.

For the borrowers: Xavier Bailliard, James Van Splinter and Joseph Tripodi of Kranjac Tripodi & Partners.

For Navient: Lisa Simonetti and Rebecca Zisek of Greenberg Traurig.

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Jody Godoy reports on banking and securities law. Reach her at