Navient to Cancel $1.8B in Student Loans Under Deal with State AGs

A deal was announced yesterday between student loan servicer Navient and 39 state attorneys general that will see the company pay $145 million in restitution and cancel $1.7 billion in delinquent private student loans to settle claims it took advantage of individuals when servicing and collecting on their student loans.

A copy of the settlement can be accessed by clicking here.

The student loan debts for about 66,000 individuals will be wiped away as part of the settlement.

“Navient repeatedly and deliberately put profits ahead of its borrowers — it engaged in deceptive and abusive practices, targeted students who it knew would struggle to pay loans back and placed an unfair burden on people trying to improve their lives through education,” said Josh Shapiro, the Attorney General of Pennsylvania, in a statement.

The settlement would bring an end to protracted litigation that began more than five years ago and included state and federal prosecutors as well as the Consumer Financial Protection Bureau. Navient was accused of making loans to individuals who it knew would be unable to repay the debt, and steering individuals into costlier long-term forbearance plans instead of income-driven repayment plans.

Navient anticipated that many of the private loans it originated would default — as much as 90%, according to a published report. But the private student loans were a gateway for the company to get access to more lucrative federal loans.

Agreeing to the settlement without admitting any wrongdoing allowed Navient to move forward and get out from under the lawsuits, the company said in a statement.

“The company’s decision to resolve these matters, which were based on unfounded claims, allows us to avoid the additional burden, expense, time and distraction to prevail in court,” said Navient’s Chief Legal Officer Mark Heleen, in a statement. “Navient is and has been continually focused on helping student loan borrowers understand and select the right payment options to fit their needs. In fact, we’ve driven up income-driven repayment plan enrollment and driven down default rates, and every year, hundreds of thousands of borrowers we support successfully pay off their student loans.”

Along with the financial penalties, Navient also agreed to make changes to its business practices to “prevent future misconduct,” according to a release from the Attorney General of California. Those changes include:

  • Ensuring that call agents discuss the benefits of income-driven repayment with all borrowers seeking to lower or stop their payments;
  • Creating a new cadre of repayment specialists trained to advise at-risk borrowers;
  • No longer compensating call agents in a manner that encourages them to handle calls quickly, and instead ensuring agents give thorough and accurate information to borrowers;
  • Implementing significant changes to its payment-processing procedures that will benefit borrowers;
  • Limiting or reducing certain fees for late payments or entering forbearances; and
  • Improving its billing statements and other communications to better inform borrowers of their rights and obligations. 

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