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Navient, once one of the country’s largest student loan servicers, struck a $1.85 billion deal with 39 states to settle allegations that it had originated bootleg loans that left borrowers with crushing debts whose repayment was most difficult was unlikely.

The deal, announced Thursday, will see Navient forgive $1.7 billion in defaulting private student loan debt for nearly 66,000 borrowers and pay $95 million in reimbursement. The private loans were critical to Navient’s ability to originate a large volume of lucrative federal loans, prosecutors said.

“Navient has repeatedly and deliberately prioritized profits for its borrowers — engaging in fraudulent and abusive practices, targeting students it knew would struggle to pay back loans and people trying to improve their lives through education , imposed an unfair burden,” said Josh Shapiro, the attorney general for Pennsylvania, one of several states that had sued Navient.

Most of those who borrowed the loans forgiven under the settlement attended for-profit schools — like the defunct ITT Technical Institute — that often have low graduation rates and poor job placement results. The private loans were – in Navient’s own words, according to legal documents – a “bait hook” to spool in more government-backed loans.

At some schools, Navient assumed more than 90 percent of loans would default. But what it lost on the private loans was far outweighed by what it gained on the federal loans—guaranteed by the government—that the students at those schools took out.

According to the rules of the Department of Education, no more than 90 percent of a school’s tuition can come from federal funds. The private loans were meant to fill that gap, according to court filings, attracting students who would then take up the lucrative federal loans that the schools — and Navient — would rely on.

Navient, which admitted no error in the settlement, said in a statement it had not acted illegally. “The Company’s decision to resolve these matters, which were based on unsubstantiated claims, allows us to avoid the added burden, cost, time and distraction of standing up in court,” said Mark Heleen, Chief Legal Officer by Navient.

The deal, which only covers borrowers from participating states and Washington, DC, would be life-changing for Ashley Hardin, who borrowed more than $150,000 to fund her dream of becoming a professional photographer.

“It’s just a big weight that was lifted,” said Ms Hardin, telling The New York Times about her 2017 fight. “I’ll sleep better.”

Ms. Hardin enrolled at the Brooks Institute of Photography, one of the schools affected by the settlement, in 2006. After nearly a decade of payments, which included a period of forbearance, she defaulted on payments during the pandemic. Ms Hardin, 38, said she had to choose between paying for health insurance or paying for her private student loans, which cost more than $1,025 a month.

Ms. Hardin, who now runs a sandwich truck with her husband in Seattle, is hoping her debt of about $118,000 will be paid off.

“This has been a long time coming and justice has definitely been served,” she said.

The settlement would end much of a series of interlinked legal actions that began five years ago when federal and prosecutors sued the company that was at the heart of the student debt collection system.

The Consumer Financial Protection Bureau filed a lawsuit in federal court alleging Navient’s mistakes and tactics that added billions of dollars to borrowers’ bills. Several attorneys general also filed state lawsuits alleging that Sallie Mae — Navient’s predecessor, from which it spun off in 2014 — made subprime private loans to borrowers it knew had weaker credit ratings and likely did would fail.

Those demands are at the heart of the settlement announced Thursday, but it also resolved states’ allegations that Navient was inflating borrowers’ bills by directing federal loan borrowers into costly long-term forbearance rather than more affordable income-based repayment plans. The deal will see payments of around $260 per person distributed to 350,000 borrowers placed in certain forbearance programs. The lawsuit by the consumer advice center, which also focuses on these claims, is ongoing.

Under the terms of the agreement, which has been submitted to the US District Court for the Middle District of Pennsylvania for approval, Navient will also pay participating states $145 million.

If the settlement is approved, Navient will notify the borrowers whose debts will be forgiven. Details of the deal were published by the participating states on a new website,

The loans canceled under the proposed settlement are past due loans made in 2002 and later to borrowers at certain nonprofit schools or through Navient initiatives, including its Opportunity and Recourse programs. Eligible schools include large for-profit chains such as ITT and Corinthian Colleges, both of which have collapsed, as well as Bridgepoint Education, DeVry University and Education Management Corporation.

But some who attended those schools are still left out: Navient agreed to eliminate the balance of those loans only for people in places that participated in the deal. Eleven states, including Texas, did not participate.

Students who live in participating locations and have attended public universities but have received “non-traditional” loans — defined in the agreement as loans to borrowers who had a credit score of less than 640 at the time the loan was made — are also eligible for that their overdue loans are cleared out.

In particular, students who had their loans current as of June 30, 2021—which means they are still paying their bills—will not call in their loans. Representatives from Mr. Shapiro, the Pennsylvania Attorney General, did not immediately respond to a question as to why those loans were excluded from the settlement.

While the canceled loans will be a great relief to the borrowers who took them on, most of the debt Navient is willing to service are long overdue loans that were already unlikely to be repaid. Navient valued the $1.7 billion it agreed to forgive at just $50 million — the amount it expected it could ever recoup, the company said in a Thursday press release Application for Admission.

The consumer center did not want to comment on Thursday. Navient appeared ready to settle the bureau’s investigations during the final months of the Obama administration, but talks collapsed after President Donald J. Trump’s 2016 election victory. Trump’s inauguration and the legal battle outlasted his tenure.

Navient decided last year to exit the federal student loan business. It ended its contract with the Department of Education, which allowed the company to transfer its 5.6 million borrower accounts to a new provider, Maximus, operating as Aidvantage.

But the company retained a billion-dollar private student loan portfolio and later resumed that line of business. Navient has originated $17 billion in new personal loans since splitting from Sallie Mae.

“This is a tremendous win for people with student debt,” said Mike Pierce, executive director of the Student Borrower Protection Center. “We’ve spent a lot of time thinking and talking about how to fix the government student loan system, and we often ignore how many extremely economically vulnerable people are stuck with these private student loans that are doomed to fail.”

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