A Reckoning with Private Loan Cancellation: Jorge Villalba’s Quest for Full Loan Cancellation | Blog

October 13, 2020

Jorge Villalba was one of tens of thousands of students scammed by ITT – the notorious for-profit college that lied to students for decades and left them with worthless degrees and insurmountable debt in the form of both federal and private student loans.


It is now common knowledge that ITT was a fraud. But former students have long known this. Their degrees are disregarded by employers, they are unable to get jobs in their field, and many have been advised to simply take the sham degree off their resume. Yet getting loan cancellation for defrauded ITT students has been an uphill legal battle.


In 2017, Jorge was one of a small number of ITT students to have his federal student loan discharged through the borrower defense process. That same year, Jorge joined several of his fellow ITT students as a named plaintiff in the ITT bankruptcy case, which helped cancel over $500 million of student debts owed to ITT.


But even with his federal student loans cancelled through borrower defense, Jorge continues to struggle with more than $69,000 in fraudulent private student loan debt held by the loan-owning and loan-servicing giant, Navient.


Navient not only refuses to cancel Jorge’s invalid loans, they misled him to believe there was no avenue to pursue cancellation. Jorge knew this was not right and he was determined to continue fighting until all of his ITT-related debts were cancelled. In September, Jorge and his mother Alicia, who co-signed some of his private student loans, filed a lawsuit against Navient demanding that his private loans are invalid and must be cancelled.


“Regardless of the type of loan, it was still fraud,” said Jorge. “Everything about ITT was a lie. And those lies didn’t just affect me, it has affected my entire family. Even with the federal loans cancelled, my credit has been severely negatively impacted. My mom is getting harassed by debt collectors threatening to garnish her wages and close her bank account.”


Jorge and his mom are far from alone. This case highlights the situation of thousands of borrowers who struggle with both their federal and private student loan debt, despite clear findings of misconduct and public enforcement actions confirming wrongdoing at these for-profit schools.


The private lending industry has been a predatory partner with for-profit colleges from the beginning. In fact, private loans are part of the for-profit college business model.  In order to comply with federal law, 10% of a for-profit school’s revenue must come from sources other than federal student loans. This is known as the “90-10” rule. Private lenders have happily stepped into filing that “10 percent” role.


Student borrowers with private loans have few, if any, options for relief. Most private student loans have high interest rates, no automatic forbearances or income driven plans. Student borrowers are locked into contracts with private loan lenders, often including mandatory arbitration clauses, which are unfair and favor schools.


There is reckoning underway with private student loan debt. In addition to the Villalbas’ lawsuit against Navient, just last month, a federal court approved settlement between a private lender and the Consumer Financial Protection Bureau and 47 states attorney general that would erase $330 million in privately-held student loan debt owed by around 35,000 former ITT students.


Most students do have a right to private student debt cancellation. The road may be long and less defined, but we’re determined to make sure for-profit student lenders don’t continue to get away with collecting on invalid loans perpetrated by the predatory student loan industry.


Only when all of these bad actors are held accountable – and the fraudulent debts are cancelled – will students begin to receive the full justice they are owed.


If you would like more information about private student loans, your rights, and local lawyers to help, visit the National Consumer Law Center’s Student Borrower Assistance website. For more information about how to stop collectors from contacting you about private student loans, visit the Consumer Finance Protection Bureau’s website.