WILMINGTON, Del.–Navient, which was once one of the largest student loan servicing companies in the U.S., has reached a $1.85 billion deal with 39 states to settle claims it had made predatory loans that resulted in borrowers overwhelmed by crushing debts they were highly unlikely to repay.
Under the agreement, Navient will cancel $1.7 billion in delinquent 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, according to prosecutors.
“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.
Pennsylvania was one of several states that filed suit against the company.
According to prosecutors, most of those who took out the loans that will be forgiven under the settlement attended for-profit schools — like the defunct ITT Technical Institute — that often have low graduation rates and poor job-placement records. The private loans were — in Navient’s own words, according to legal filings — a “baited hook” to reel in more federally backed loans, prosecutors said.
“The action found that at some schools Navient anticipated that more than 90% of the loans would default. But what it lost on the private loans was far outweighed by what it gained on the federal loans — guaranteed by the government — that students at those schools took out,” noted the New York Times.
Navient Issues Statement
Navient, which did not admit any fault in the settlement, said in a statement that 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.
Prosecutors said the settlement would end 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 at the heart of the student debt collection system.
The Consumer Financial Protection Bureau had also earlier 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 had weaker credit and were likely to default, the New York Times added.
Terms of the Deal
The deal calls for payments of around $260 per person to be distributed to 350,000 borrowers who were placed in certain forbearance programs. The CFPB’s lawsuit, which also centers on those claims, is continuing. Under the agreement, which was submitted to the U.S. District Court for the Middle District of Pennsylvania for approval, Navient will also pay the participating states $145 million.