Settlement includes $1.7 billion in debt cancellation and $95 million in restitution; Pennsylvania borrowers will receive over $70 million in relief
HARRISBURG–Attorney General Josh Shapiro announced today that Navient, known as one of the nation’s largest student loan servicers, will provide relief totaling $1.85 billion to resolve allegations of widespread unfair, deceptive, and abusive student loan servicing practices and abuses in originating predatory student loans.
“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 Attorney General Shapiro. “Today’s settlement corrects Navient’s past behavior, provides much needed relief to Pennsylvania borrowers, and puts in place safeguards to ensure this company never preys on student loan borrowers again.”
This settlement, joined by a coalition of 39 attorneys general, resolves claims that since 2009, despite representing that it would help borrowers find the best repayment options for them, Navient steered struggling student loan borrowers into costly long-term forbearances instead of counseling them about the benefits of more affordable income-driven repayment plans.
According to the attorneys general, the interest that accrued because of Navient’s forbearance steering practices was added to the borrowers’ loan balances, pushing borrowers further in debt. Had the company instead provided borrowers with the help it promised, income-driven repayment plans could have potentially reduced payments to as low as $0 per month, provided interest subsidies, and/or helped attain forgiveness of any remaining balance after 20-25 years of qualifying payments (or 10 years for borrowers qualified under the Public Service Loan Forgiveness Program).
Navient also allegedly originated predatory subprime private loans to students attending for-profit schools and colleges with low graduation rates, even though it knew that a very high percentage of such borrowers would be unable to repay the loans. Navient allegedly made these risky subprime loans as “an inducement to get schools to use Navient as a preferred lender” for highly-profitable federal and “prime” private loans, without regard for borrowers and their families, many of whom were unknowingly ensnared in debts they could never repay.
“Our investigation uncovered two deceptive and unfair schemes Navient was using that broke the law and put their own profits ahead of the people they served. The first scheme involved Navient issuing subprime private loans to borrowers they knew could not pay the money back – similar to the mortgage crisis in 2008. The second scheme we uncovered was Navient’s drive to mislead borrowers into forbearances, which stopped them from paying down the principal on their loan and led many to accumulate more debt and never-ending interest payments,” said AG Shapiro.
Under the terms of the settlement, Navient will cancel the remaining balance on nearly $1.7 billion in subprime private student loan balances owed by nearly 66,000 borrowers nationwide. In addition, a total of $95 million in restitution payments of about $260 each will be distributed to approximately 350,000 federal loan borrowers who were placed in certain types of long-term forbearances. Borrowers who will receive restitution or debt cancellation span all generations: Navient’s harmful conduct impacted everyone from students who enrolled in colleges and universities immediately after high school to mid-career students who dropped out after enrolling in a for-profit school in the early to mid-2000s.
Approximately 13,000 Pennsylvania borrowers will receive $3.5 million in restitution payments and another 2,467 Pennsylvanians will receive $67 million in debt cancellation. In total, Attorney General Shapiro’s lawsuits and settlements have resulted in more than $132.5 million in private student loan cancellation since 2017.
The settlement includes conduct reforms that require Navient to explain the benefits of income-driven repayment plans and to offer to estimate income-driven payment amounts before placing borrowers into optional forbearances. Additionally, Navient must train specialists who will advise distressed borrowers concerning alternative repayment options and counsel public service workers concerning Public Service Loan Forgiveness (PSLF) and related programs. The conduct reforms imposed by the settlement include prohibitions on compensating customer service agents in a manner that incentivizes them to minimize time spent counseling borrowers.
The settlement also requires Navient to notify borrowers about the U.S. Department of Education’s recently announced PSLF limited waiver opportunity, which temporarily offers millions of qualifying public service workers the chance to have previously nonqualifying repayment periods counted toward loan forgiveness—provided that they consolidate into the Direct Loan Program and file employment certifications by October 31, 2022. The Attorney General encourages all Pennsylvania residents who work in the government or non-profit sectors to review the PSLF website to determine whether they might qualify for loan forgiveness.
As a result of today’s settlement, borrowers receiving private loan debt cancellation will receive a notice from Navient by July 2022, along with refunds of any payments made on the cancelled private loans after June 30, 2021. Private loan borrowers do not need to take any action to qualify for relief.
Federal loan borrowers who are eligible for a restitution payment of approximately $260 will receive a postcard in the mail from the settlement administrator later this spring.
Federal loan borrowers who qualify for relief under this settlement do not need to take any action except update or create their studentaid.gov account to ensure that the U.S. Department of Education has their current address. For more information, visit www.NavientAGSettlement.com.
Until recently, Navient had a contract to service federal student loans owned by the U.S. Department of Education, including a large portfolio of loans made under the Direct Loan Program and a smaller portfolio of loans made under the Federal Family Education Loan (FFEL) program. On October 20, 2021, the U.S. Department of Education announced the transfer of this contract from Navient to Aidvantage, a division of Maximus Federal Services, Inc. However, Navient will continue to service federal student loans made under the FFEL Program that are owned by private lenders, as well as non-federal private student loans.
Attorney General Shapiro sued Navient in October 2017. Over the course of four years of litigation, Shapiro’s office defeated a motion to dismiss, and it obtained important Court rulings regarding the Privacy Act, the Higher Education Act, and the Consumer Financial Protection Act. And in July 2020, the U.S. Court of Appeals for the Third Circuit affirmed the rulings of the lower court allowing the Attorney General’s lawsuit against Navient to move forward.
Attorney General Shapiro filed the settlement as a Consent Judgment today in the U.S. District Court for the Middle District of Pennsylvania. The settlement will require court approval.
Attorney General Shapiro co-led the litigation and negotiation of the settlement with Washington, Illinois, Massachusetts, and California. This settlement was joined by attorneys general in Arizona, Arkansas, Colorado, Connecticut, the District of Columbia, Delaware, Florida, Georgia, Hawaii, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Michigan, Minnesota, Missouri, Nebraska, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio, Oregon, Rhode Island, South Carolina, Tennessee, Vermont, Virginia, West Virginia and Wisconsin.
This case was litigated by Senior Deputy Attorney General Jill Ambrose, Deputy Attorney General Francesca Iovino, Chief Deputy Attorney General Jesse Harvey, Assistant Director for Consumer Financial Protection Nicholas Smyth, and Agent Supervisor Kathryn Passarelli. Attorney General Shapiro recognizes his Pittsburgh office for its extraordinary work on this case over the past four years.
Since Attorney General Shapiro launched his Consumer Financial Protection Unit in July 2017, the unit has obtained more than $328 million in relief for over 126,000 Pennsylvania consumers. This number includes $89.67 million in restitution, $41.81 million in penalties and other payments, and $196.77 million in debt cancellation.
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