Navient settles claims of predatory student loans
Servicing company required to cancel $1.7B in debts for 66,000 borrowers
Navient, once one of the country’s largest student loan servicing companies, reached a $1.85 billion deal with 39 states to settle claims that it had made predatory student loans that saddled millions of borrowers with billions of dollars in debt that they were highly unlikely to repay.
The deal, announced Thursday, requires Navient to cancel $1.7 billion in private student loan debts for nearly 66,000 borrowers and pay $95 million in restitution.
The private loans were crucial to Navient’s ability to make a large volume of lucrative federal loans, prosecutors said.
“Navient repeatedly and deliberately put profits ahead of its borrowers,” said Josh Shapiro, the attorney general of Pennsylvania, one of several states that had sued Navient.
Most of those who took out the private loans attended for-profit schools, often ones with low graduation rates and poor job-placement records. The private loans Navient made were — in the company’s own words, according to legal filings — a “baited hook” that the lender used to reel in more federally guaranteed loans.
At some schools, it anticipated that more than 90% of the loans would default.
Navient, which did not admit any fault in the settlement, said it did not act illegally.
“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 Mark Heleen, Navient’s chief legal officer.
The deal ends a major portion of a set of linked legal actions that began five years ago, when federal and state prosecutors sued the company, which was then at the heart of the student debt collection system.
The Consumer Financial Protection Bureau sued in federal court over what it called mistakes and tactics by Navient that inflated borrowers’ bills by billions of dollars. Several state attorneys general also filed state lawsuits claiming that Sallie Mae — Navient’s predecessor company, from which it split off in 2014 — made private, subprime loans to borrowers it knew were likely to default.
Under Education Department rules, no more than 90% of a school’s tuition payments can come from federal funding. The private loans were intended, according to court filings, to fill that gap and lure in students, who would then take out the lucrative federal loans that the schools — and Navient — relied on.
Those claims are the focus of Thursday’s settlement, but it also resolved the states’ charges that Navient inflated borrowers’ bills by steering federal loan borrowers into costly long-term forbearances instead of guiding them toward more affordable income-based repayment plans. The consumer bureau’s lawsuit, which centers on those claims, is continuing.
The settlement calls for payments of around $260 per person to be distributed to 350,000 federal loan borrowers who were placed in certain types of long-term forbearances.