Published On: Thu, Jan 13th, 2022

Navient Reaches $1.85 Billion Deal Over Predatory Lending Claims

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 — 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, 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 percent 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 percent 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. The deal, which was submitted to the U.S. District Court for the Middle District of Pennsylvania, requires court approval.

Mr. Shapiro said the settlement provides relief for borrowers affected by Navient’s past behavior and “puts in place safeguards to ensure this company never preys on student loan borrowers again.”

Navient decided last year to get out the federal student loan business. It ended its contract with the Education Department, which allowed the company to transfer its 5.6 million borrower accounts to a new vendor, Maximus, which does business as Aidvantage. But the company retained a portfolio of private student loans worth billions of dollars, and it later resumed that line of business. Navient has issued $17 billion in new private loans since it split from Sallie Mae.

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

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