BOSTON (AP) — Navient, a major student loan services company, has settled $1.85 billion in allegations of fraudulent lending practices, officials said Thursday while announcing a settlement that would cancel student loans from tens of thousands of borrowers.
The settlement includes $1.7 billion in debt relief and $95 million in restitution and affects 39 attorneys general. Allegations that Navient guided student borrowers to long-term forbearance rather than advising them on less costly repayment plans are settled, according to Pennsylvania Attorney General Josh Shapiro, who co-led the litigation and negotiation of the settlement with the states of Washington, Illinois, and Massachusetts California.
Louisiana Attorney General Jeff Landry said more than 13,000 borrowers across the state will receive reimbursements totaling about $3.6 million. Another 1,178 in Louisiana will receive a total of $23,736,065 in personal loan debt relief.
Those who qualify need do no more than update or create their studentaid.gov account to ensure the US Department of Education has their current address.
“Navient has repeatedly and deliberately driven its borrowers with profits – it has engaged in fraudulent and abusive practices, targeted students who it knew would have difficulty paying back loans, and people who tried to make their lives through education improve, imposed an unfair charge, “Shapiro said in a statement.
The settlement requires court approval.
Under the terms of the settlement, Navient will foreclose more than $1.7 billion in subprime private student loans owed by more than 66,000 borrowers nationwide, Shapiro said. Navient will also pay a total of $142.5 million, of which $95 million will be distributed to approximately 350,000 federal borrowers placed on certain types of long-term forbearance.
Shapiro said the subprime loans were “made to borrowers they knew couldn’t pay the money back,” a situation similar to the 2008 mortgage crisis. In addition, he said, Navient has “misled borrowers … leading many to rack up more debt and endless interest payments.”
Forbearance refers to when a lender allows a borrower to pause or reduce payments for a limited time while they rebuild their finances. However, interest on the loan will continue to accrue and could ultimately result in a higher amount repaid over the life of the loan.
Navient said it did not act illegally and admitted no error in the settlement.
“Navient has always been focused on helping student loan borrowers understand and choose the right payment options for their needs. In fact, we’ve increased enrollment for income-based repayment plans and reduced default rates, and each year hundreds of thousands of borrowers we support successfully pay off their student loans,” Navient’s chief legal officer, Mark Heleen, said in a statement.
The comparison requires Navient to explain the benefits of income-contingent repayment plans and offer to estimate income-contingent payment amounts before placing borrowers on optional forbearance.
Navient also needs to train specialists to advise distressed borrowers on alternative repayment options and advise government employees on government loan forgiveness and related programs.
As a result of the settlement, consumers who receive a personal loan cancellation will receive a notification from Navient along with refunds of any payments made after June 30, 2021 for the canceled loans.
“Today’s settlement requires Navient to fix its mistakes … and is an important step in addressing our broken student loan repayment system,” Massachusetts Attorney General Maura Healey said at a news conference.
The settlement also requires Navient to notify borrowers of the limited PSLF waiver recently announced by the U.S. Department of Education, which provides millions of qualified government employees with the temporary ability to have previously non-qualifying repayment periods count toward loan forgiveness, provided they do so Consolidate into the direct loan program and submit certificates of employment by October 31, 2022.