Navient, one of the largest student loan servicers in the US, has reached a $1.85 billion settlement with a coalition of attorney generals who have accused the company of predatory lending practices.
The payment, used to cancel certain student loans and payouts, compares a series of court cases dating back to 2017. Several states accused Navient of targeting students on repayment plans with exorbitant interest rates, specifically aimed at students with bad credit who attend for-profit schools with low graduation rates.
As part of the settlement, 66,000 from 39 states and Washington DC, many who attended nonprofit schools and have already defaulted on their loans, will have their debt forgiven, according to the Washington Post.
Another 350,000 borrowers of federal loans placed under certain types of long-term forbearance will receive a portion of the settlement — worth $260 per borrower — as part of the company’s payout. Overall, Navient is expected to pay $1.7 billion in loan cancellations and $95 million in payouts.
“Navient’s predatory practices have preyed on students who wanted nothing more than an education. The company placed borrowers in risky subprime loans, leaving them in debt they could never repay,” said Michigan Attorney General Dana Nessel, one of the attorney generals suing Navient, in a Explanation on Thursday. “This comparison reflects the level of accountability for impacted borrowers across the country.”
Attorneys general accused Navient of encouraging students to take costly forbearance instead of pointing them to better repayment plans to pay off their loans. Borrowers who signed up for forbearance between January 2010 and March 2015 collected more than $4 billion in interest after the forbearance plans saw accrued interest added to existing loan balances, according to the lawsuits.
The majority of the loans in question were serviced by student loan company Sallie Mae, whose lending services operation eventually branched out into Navient in 2014, which assumed the liabilities of most of the assets tied to Sallie Mae’s lending services arm.
Until last fall, Navient was the largest provider of federal student loans under a contract with the Department of Education. In a major reorganization, Navient declined to renew its contract and chose to transfer its 5.6 million federal loan accounts to Maximus, another loan services operation.
Despite the settlement, Navient denied any wrongdoing and said it opted to settle rather than pay the cost of resolving each individual lawsuit.
“This is really about eliminating a time-consuming, distracting and costly process,” Navent CEO Jack Remondi told The Washington Post. “With the ability to specifically deny the claims made in these cases and the harm done to the borrower, I think it is remarkable that we are not abandoning our defense here. We just agree it’s time to move on.”