Giant student loan servicer Navient has agreed to pay $1.85 billion to student loan borrowers nationwide, settling a lawsuit filed by a coalition of state attorneys general in 2009.
The settlement resolves claims that despite representing that it would help borrowers find the best repayment options, Navient steered struggling student loan borrowers into costly long-term forbearances instead of counseling them about the benefits of more affordable income-driven repayment plans.
“There are thousands of student loan borrowers in our state and not one of them deserves to be taken advantage of by their loan servicer,” said Rhode Island Attorney General Peter F. Neronha. “This settlement will directly benefit hundreds of borrowers in Rhode Island with debt cancellation, and thousands more borrowers by ensuring these practices will not happen again.”
As a result of today’s settlement, borrowers receiving private loan debt cancellation will receive a notice from Navient by July 2022, along with refunds of any payments made on the cancelled private loans after June 30, 2021.
Borrowers who qualify for relief under this settlement do not need to take any action except update or create their studentaid.gov account to ensure that the U.S. Department of Education has their current address. For more information, visit www.NavientAGSettlement.com.
“Dangerous and predatory” loans
“At long last, the student loan borrowers who had been forced to shoulder the burden of dangerous and predatory private student loans made by Sallie Mae and owned by Navient will finally be debt free,” said Student Borrower Protection Center Executive Director Mike Pierce, in a news release.
“Navient cheated borrowers at every stage of repayment, taking advantage of low-income borrowers, disabled veterans, seniors, and more, all in service to its bottom line. Today, these 39 states won a hard-fought battle to remedy this long history of abuse,” Pierce said.
“Borrowers may not be able to enjoy Navient CEO Jack Remondi’s $8 million salary, his three homes, or his use of the company’s private jet. But they can rest a little bit easier knowing that a measure of justice has been served,” he said.
Borrowers pushed further into debt
According to the attorneys general, the interest accrued because of Navient’s forbearance steering practices was added to the borrowers’ loan balances, pushing borrowers further in debt.
Had the company instead provided borrowers with the help it promised, income-driven repayment plans could have potentially reduced payments to as low as $0 per month, provided interest subsidies, and/or helped attain forgiveness of any remaining balance after 20-25 years of qualifying payments (or 10 years for borrowers who qualify under the Public Service Loan Forgiveness Program).
Navient also allegedly originated predatory subprime private loans to students attending for-profit schools and colleges with low graduation rates, even though the company knew that a very high percentage of such borrowers would be unable to repay the loans.
Navient allegedly made these risky subprime loans as “an inducement to get schools to use Navient as a preferred lender” for highly profitable federal and “prime” private loans, without regard for borrowers and their families, many of whom were unknowingly ensnared in debts they could never repay.
Settlement includes “conduct reforms”
The settlement includes conduct reforms that require Navient to explain the benefits of income-driven repayment plans and to offer to estimate income-driven payment amounts before placing borrowers into optional forbearances. Additionally, Navient must train specialists who will advise distressed borrowers concerning alternative repayment options and counsel public service workers concerning Public Service Loan Forgiveness (PSLF) and related programs.
The settlement also requires Navient to notify borrowers about the U.S. Department of Education’s recently announced PSLF limited waiver opportunity, which temporarily offers millions of qualifying public service workers the chance to have previously nonqualifying repayment periods counted toward loan forgiveness—provided they consolidate into the Direct Loan Program and file employment certifications by October 31, 2022.
A Sallie Mae spin-off
Created in 2014 after being spun off from the student loan company Sallie Mae, Navient operates in various markets including student loan servicing, debt collection, and consumer lending.
Though Navient recently exited its role as a servicer on behalf of the U.S. Department of Education, the company continues to collect on more than $54 billion in government guaranteed loans originated under the older, bank-based federal student loan program and $20 billion in other private education loans, making it the largest single private-sector creditor in the student loan market.
Today’s settlement was led by attorneys general in Pennsylvania, Washington, Illinois, Massachusetts, and California, and was joined by attorneys general in Arizona, Arkansas, Colorado, Connecticut, the District of Columbia, Delaware, Florida, Georgia, Hawaii, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Michigan, Minnesota, Missouri, Nebraska, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio, Oregon, Rhode Island, South Carolina, Tennessee, Vermont, Virginia, West Virginia, and Wisconsin.