Thirty nine state attorneys general, among them Josh Shapiro in Pennsylvania and Andrew J. Bruck in New Jersey, reached a $1.8 billion settlement with student-loan processor Navient over alleged abusive practices that steered borrowers into loans they couldn’t pay off and failed to offer counsel on more affordable repayment plans, officials said Thursday.
Under the terms of the settlement, released Thursday, the Wilmington-based Navient will cancel the remaining balance on nearly $1.7 billion in subprime private student loan balances owed by about 65,000 borrowers nationwide. Another $95 million will be paid in restitution to roughly 350,000 federal student borrowers whose loans were placed for two consecutive years in forbearance, leading to high interest charges. This amounts to about $260 per borrower.
According to Shapiro, Navient allegedly originated predatory subprime private loans to students attending for-profit schools and colleges with low graduation rates, even though it knew that many borrowers would be unable to repay the loans. Shapiro called the practice similar to the subprime mortgage crisis that led to the 2008 financial collapse.
Navient said in a statement that the allegations were baseless, it did not admit wrongdoing and it settled to save litigation costs. “The agreements include an express denial of the claims and any borrower harm by the company,” Navient said.
“These lawsuits began more than eight years ago, yet we are still years away from our day in court,” Navient officials said in the statement. “We made this decision to avoid the burden, expense, time and distraction it would take to resolve these claims through state-by-state litigation and investigations.”
Last year, Navient relinquished its student-loan processing contract with the U.S. Department of Education.
Under the deal, Navient will cancel loan balances for borrowers with certain qualifying private education loans who have been in default for many years. Virtually all of these loans were originated between 2002 and 2010 at Sallie Mae, prior to the Navient spin off, the company said.
The settlement is the latest action promising relief to student loan borrowers who collectively owe about $1.8 trillion. The Trump and Biden administrations have delayed loan payments on federal student loans because of the pandemic but borrowers have clamored for a more permanent solution.
“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,” Shapiro said. The “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.”
Shapiro added that his investigation into Navient also uncovered “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.” These are students who took out federal student loans.