Navient, one of the largest private student loan providers in the United States, has reached a $1.85 billion settlement with dozens of states that have accused the company of ‘deceptively entrapping’ thousands of students. borrowers in costly repayment plans.
The settlement was a blow to one of the best-known student loan providers in the United States, which authorities had accused of predatory behavior as scrutiny intensified over an accumulation of student debt that grew accelerated precariously.
Under the agreement with 39 states, $1.7 billion in private student loan debt owed by nearly 66,000 customers will be forgiven and Navient will pay $95 million in restitution to students across the country.
“For too long, Navient has contributed to the national student debt crisis by deceptively trapping thousands of students in more debt,” New York Attorney General Letitia James said in a statement. “Navient will no longer be able to line their pockets at the expense of students trying to obtain a university degree.”
The states investigation found that beginning in 2009, Navient pushed students struggling to repay their loans into costly, long-term forfeitures rather than advising them on alternative repayment plans, which increases the debt burden on customers, according to the New York Attorney General’s Office. .
Authorities said the company “also provided predatory, subprime and private loans” to students attending for-profit schools and lower-quality institutions, knowing that many of those borrowers would be unable to repay their debts.
“The company’s decision to resolve these issues, which were based on unsubstantiated claims, allows us to avoid the additional burden, expense, time and distraction that prevails in court,” said Mark Heleen, chief legal officer of Navient. The loan provider helped borrowers choose “the right payment options to meet their needs,” he said. Navient has denied any wrongdoing.
The settlement comes as Joe Biden’s administration faces pressure to tackle the US student debt crisis. About 43 million Americans owe $1.7 billion in education debt, mostly to the federal government. Borrowers say the loans are inconvenient to repay and have clouded their future financial prospects by cutting them off from small business and mortgage financing.
A payment pause put in place at the start of the Covid-19 pandemic, which has been repeatedly extended, kept balances from growing until May, but borrowers and progressive activists are pushing for more permanent relief . Elizabeth Warren, the Democratic senator from Massachusetts, has made calls for Biden to forgive $50,000 of debt per borrower through executive action. He refused to do so.
Specialty finance companies such as Navient account for the lion’s share of the private student debt market. The big banks went out of business over the past decade as they tightened underwriting standards and new laws made it easier for students to borrow directly from the government.
In September, private loans accounted for about 8% of the $1.72 billion in student loans outstanding in the United States, according to research firm MeasureOne. The remaining 92% were federal loans.
Under the agreement, Navient must implement “conduct reforms,” such as outlining the benefits of reimbursement plans other than forbearance.
Navient has already been the subject of legal action by US authorities. In 2017, the US Bureau of Consumer Financial Protection sued Navient, formerly part of Sallie Mae, the nation’s student finance group, for “unlawful cheating”.[ing] borrowers out of their repayment rights through shortcuts and deceit”. The case is ongoing.