A former student at the now-defunct ITT Technical Institute and his mother are suing student loan giant Navient (NAVI) over the company’s refusal to cancel his private student loans despite the U.S. government erasing thousands of federal student loans related to the notorious for-profit school.

The case could set a precedent for defrauded borrowers seeking relief from privately-held loans (as opposed to federally-backed loans).

“In filing this case, and expanding the discussion about private student loan cancellation, it sends a clear message to Navient and other private lenders that they can’t continue to deny students’ rights while profiting off of their debt,” Victoria Roytenberg, senior attorney at the Project on Predatory Student Lending and a lawyer for the plaintiffs, told Yahoo Finance. “All students should have the right to the cancellation and shouldn't be stuck with that bogus debt.”

Navient declined a request for comment.

‘I have a four-year degree that is worthless’

Jorge Villalba, who attended an ITT school in California for a bachelor’s degree in digital entertainment and game design in 2006, borrowed over $50,000 in federal student loans and $43,000 in private loans (that were co-signed by his mother). ITT shut down all campuses in 2016, affecting roughly an estimated 35,000 students, amid lawsuits and investigations over alleged predatory lending practices.

“I didn’t get a good education — I have a four-year degree that is worthless,” Villalba told Yahoo Finance in an interview. “When I was trying to apply for jobs, I couldn’t get jobs because people didn’t want students from that school. They’d see the diploma from the school, and go: ‘It’s okay, thank you.’ ... There should be something where the government can help you out and say, ‘Let’s get this loan discharged because they committed fraud.’”

Villalba filed for a borrower defense to repayment, seeking forgiveness on his federal student loans. The Education Department canceled that debt in December 2017. Navient refused to do the same for his private loans. The lawsuit argues that the loans are legally unenforceable given the underlying ITT fraud.

“There’s a long line of law that says the entity that’s financing a good can be liable for the underlying good, and that’s basically what’s happening here,” Mike Pierce, policy director and managing counsel at the nonprofit Student Borrower Protection Center, told Yahoo Finance. “You have a product, which is an education at a for profit college that is being sold — and financed — in commerce, and that product being sold to a consumer is fraud …. it’s not a crazy idea by any stretch of the imagination — it’s something that’s deeply rooted in decades of law.”

After Villalba’s federal loans were discharged in 2018 due to widespread misconduct at the for-profit chain, in November, his lawyers had written to Navient asking the company to “recognize that the private student loans were unenforceable” and to stop collecting on the debt.

Navient rejected the argument. The lawsuit asserts that the student loan giant first argued that the Villalbas didn’t have the right to cancellation before arguing that they didn’t satisfy the requirements to have his debt canceled. They then argued that he should go to the federal government about this matter.

“The ultimate goal is a court order compelling the rescission of these loans,” Pierce said about the lawsuit, noting that there is still a question of whether Navient will come to a settlement or fight the case. In any case, he added, “for the first time in decades we can actually see a path” for defrauded borrowers seeking relief from privately-held loans.

There is some precedent for private debt linked to ITT being discharged: For instance, $168 million worth of ITT loans students took out, managed by Student CU Connect CUSO, were erased last year in a settlement between the Consumer Financial Protection Bureau, 44 states, and Washington D.C. (ITT settled a separate lawsuit in 2017, which erased nearly $600 million owed by roughly 750,000 former students – including Villalba — related to “temporary credits” provided by the school.)

Though the Navient loans are private loans that are not directly linked to ITT, Pierce noted that Navient’s predecessor, Sallie Mae, not only issued federally guaranteed loans to borrowers for accredited schools but also worked directly with schools to issue private student loans when the students ran out of federal financial aid.

And in 2017, the Illinois Attorney General sued Navient and Sallie Mae, alleging that there were “widespread abuses across all aspects of its business” and that “Sallie Mae began peddling risky and expensive subprime loans to student loan borrowers as loss leaders in order to dramatically boost its student loan portfolio with schools across the country.”

Though Villalba’s experience focused more on the issue of fraud at the school rather than the loan servicer itself, Pierce also believed the lawsuit ties these two themes together and that the borrower should be entitled to discharge given both instances.

“Everyone knew full well that these loans were made on shaky ground, to put it as charitably as possible,” Pierce said, adding that since “we know the school engaged in fraud, we don’t have to work so hard to knock the legs out from underneath the loans themselves because we have this robust body of evidence that shows that the schools themselves were engaged in fraud.”

‘From 2010 until today, it has just been horrible’

Villalba detailed how Navient “would call me at work when they didn’t have my work number” while attempting to recoup the debt. He added that the company reached out to members of his family, even those who “had nothing to do with the school or any loans.” His mom, Alicia Villalba, who co-signed on the loans, also received calls.

“They were asking her for money, they wanted to garnish whatever money she was making,” he said. “From 2010 until today, it has just been horrible.”

In a statement, Alicia Villalba said that the situation severely damaged her credit.

“The credit I worked really hard to get is completely ruined,” she stated. “I cannot even get a credit card of my own, my husband has to have all the finances in his name. It is a lot of stress and worry for the whole family.”

The lawsuit noted that the credit reports for both Jorge and Alicia Villalba contained entries from Navient stating they were 60-90 days past due on their private loans but “do not reflect Plaintiffs’ dispute of the enforceability of their private student loans.”

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Aarthi Swaminathan is a reporter for Yahoo Finance, covering consumer finance and education. Aarthi can be reached at [email protected]. Follow her on Twitter at @aarthiswami.

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