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Student loan servicer is expected to pay $1.7bn in loan cancellation and $95m in payouts
Navient, one of the largest student loan servicing companies in the US, has made a $1.85bn settlement with a coalition of attorneys general who accused the company of predatory loan practices.
The payment, which will go toward the cancellation of certain student loans and payouts, settles a series of lawsuits that date back to 2017. Multiple states accused Navient of directing students toward repayment plans with exorbitant interest rates, specifically targeting students with poor credit who were attending for-profit schools with low graduation rates.
Under the settlement, 66,000 from 39 states and Washington DC, many who attended for-profit schools and have already defaulted on their loans, will have their debts cancelled, according to the Washington Post.
Another 350,000 federal loan borrowers who were placed under specific types of long-term forbearances will receive a portion of the settlement – worth $260 a borrower – as part of the company’s payout. In total, Navient is expected to pay $1.7bn in loan cancellation and $95m in payouts.
“The predatory practices used by Navient exploited students who wanted nothing more than an education. The company placed borrowers in risky subprime loans, causing them to incur debts they could never repay,” said Michigan attorney general Dana Nessel, one of the attorneys general who sued Navient, in a statement on Thursday. “This settlement reflects accountability for affected borrowers across the country.”
The attorneys general accused Navient of encouraging students to enter into costly forbearances instead of directing them to better repayment plans to pay off their loans. Borrowers who enrolled in forbearances between January 2010 and March 2015 accumulated more than $4bn in interest after the forbearance plans saw accrued interest being added on to existing loan balances, according to the lawsuits.
The bulk of the loans in question were serviced by the student loan company Sallie Mae, the loan servicing operations of which ultimately in 2014 branched off into Navient, which absorbed the liabilities of most of the assets tied to Sallie Mae’s loan servicing arm.
Until last fall, Navient was the largest service provider of federal student loans under a contract with the Department of Education. In a large shakeup, Navient declined to renew its contract and opted to transfer its 5.6m federal loan accounts to Maximus, a different loan service operation.
Despite the settlement, Navient denied any wrongdoing and said it had opted for a settlement in lieu of paying the cost of resolving each individual lawsuit.
“This is really about eliminating a time-consuming, distracting and costly process,” Navient’s CEO, Jack Remondi, told the Washington Post. “With the ability to explicitly deny the claims that were made in these cases and borrower harm, I think it’s noteworthy that we’re not giving up on our defense here. We’re just agreeing that it’s time to move on.”