Student loan processor Navient agrees to $1.8 billion deal with states over predatory practices

Thirty-nine state attorneys general, including Josh Shapiro in Pennsylvania and Andrew J. Bruck in New Jersey, have reached a $1.85 billion settlement with student loan processor Navient over allegations that he allegedly directed borrowers to loans they could not repay and did not offer a lawyer. on more affordable repayment plans, officials said Thursday.

Under the terms of the regulation released Thursday, Wilmington-based Navient will write off the remaining balance on nearly $1.7 billion in subprime private student loan balances owed by more than 65,000 borrowers nationwide. This is debt that has likely hurt borrowers’ credit scores for years. And collectively, cancellation represents the greatest benefit to consumers in the agreement.

And an additional $95 million will be paid in restitution to approximately 350,000 federal student borrowers whose loans have been suspended for two consecutive years, resulting in higher loan balances. That equates to about $260 per borrower, attorneys general said.

According to Shapiro, Navient allegedly created risky predatory private loans to students attending for-profit schools and colleges, even though its executives knew many borrowers would be unable to repay the loans. Shapiro called the practice similar to how lenders in the subprime mortgage crisis offered homebuyers loans they couldn’t repay, leading to foreclosures and the 2008 financial collapse. .

Navient said in a statement that the allegations were without merit, he did not admit wrongdoing and he managed to save legal costs. “The agreements include an express denial of claims and of any harm caused to the borrower by the company,” Navient said.

“These lawsuits began more than eight years ago, but we are still years away from our day in court,” Navient officials added. “We made this decision to avoid the burden, expense, time and distraction it would take to resolve these claims through litigation and state-by-state investigations.”

Last year, Navient waived its student loan processing contract with the US Department of Education. More than five million borrower accounts will soon be transferred to Maxim, a competing government loan servicing company.

Federal student loan borrowers are expected to resume payments in May 2022 after a hiatus due to the pandemic.

Neither Navient nor state attorneys general can cancel federal student loans. But as part of the agreement announced Thursday, Navient will cancel certain eligible private loan balances for borrowers who have been in default.

Almost all of these private loans were issued between 2002 and 2010 by Sallie Mae, which spun off its student loan services by creating Navient in 2014, the company said. Borrowers do not have to do anything to qualify for the relief. Navient or the settlement administrator will send a letter by July 2022 to each eligible private borrower, according to a press release outlining the settlement and attorneys general who participated in a nationwide press conference on Zoom.

The 45-page settlement with multiple provisions is the latest action to reduce the country’s nearly $1.8 trillion student loan debt, which experts say has forced young adults to put off buying a car. house or even to get married. In many cases, this debt has complicated the retirement plans of older Americans, who are returning to school or have enlisted as loan co-signers. The Trump and Biden administrations have delayed federal student loan repayments due to the pandemic, but borrowers have been pushing for a more permanent solution.

“We see steps in the right direction,” said Fred Amrein, managing director of PayFORED, a student loan solutions provider in Newtown Square. But he said the Navient settlement “doesn’t even reach 1%” of the $1.8 trillion student loan debt.

In a statement, Shapiro said that “Navient repeatedly and deliberately put profits ahead of its borrowers – it engaged in deceptive and abusive practices, targeted students it knew would struggle to repay their loans and placed an unfair burden on people trying to improve their lives through education.

He added that the investigation of Navient revealed “Navient’s intention to mislead borrowers, which prevented them from repaying their loan principal and led many of them to accumulate more debt and to pay endless interest”. These are students who have taken out federal student loans.

In Pennsylvania, the deal’s big debt forgiveness looks like this: 2,467 Pennsylvanians will receive $67 million in private debt forgiveness, an average of $27,158 per borrower, according to the attorney general’s office.

In addition, 13,000 Pennsylvania student borrowers will receive $3.5 million in forbearance restitution payments, or about $260 on average.

New Jersey Acting Attorney General Bruck said New Jersey student borrowers would receive more than $60 million in debt forgiveness as part of a settlement with Navient that resolves a 2020 issue. trial filed by the state. The lawsuit alleged that Navient engaged in deceptive conduct and misrepresentation when servicing thousands of student loans to New Jersey consumers over the past decade – boosting the company’s profits at the expense of borrowers by difficulty.

The New Jersey portion includes approximately $57.2 million in debt forgiveness and $3.1 million in restitution payments to borrowers, as well as a $3 million payment to the state.

A separate lawsuit against Navient by the Consumer Financial Protection Bureau, a federal agency, is pending, and the claims are similar to lawsuits by state attorneys general.

“We are convinced that we will prevail in the trial against the CFPB. After years of investigations, findings and litigation, the CFPB has failed to produce a single borrower to substantiate its claims because they do not exist,” Navient said in its statement. More information on the CFPB suit is available at navient.com/legalfacts.

In addition to Navient, FedLoan, part of the Pennsylvania Higher Education Assistance Agency (PHEAA) in Harrisburg, will also exit its federal student loan servicing business. It came after US Senator Elizabeth Warren (D., Mass.) lambasted PHEAA CEO James Steeley for allegedly misleading her committee during a hearing in April. In July, FedLoan said it would not renew its federal loan servicing contract when it expires in December.

Mike Pierce, executive director of the Student Borrower Protection Center, welcomed the case:

“Finally, student borrowers who had been forced to bear the burden of dangerous and predatory private student loans made by Sallie Mae and held by Navient will finally be debt free. Today’s action is a clear victory for many of the millions of borrowers whose pain Navient and Sallie Mae has shamelessly turned into profit.

“Borrowers may not be able to take advantage of Navient CEO Jack Remondi’s $8 million salary, his three homes, or his use of the company’s private jet. But they can rest a little easier. knowing that a measure of justice has been served,” he said.

Alexis Miller, 37, graduated in 2007 from Drexel with a nursing degree and about $61,000 in school loans.

“I funded my entire degree with loans, and many, many nurses do the same,” Miller said at a press conference with Shapiro and John Fry, president of Drexel University, Thursday after- midday.

She said Navient moved her away from income-driven repayment plans and instead into forbearance, where her payments were suspended and her debt soared to more than $80,000. “I knew in my gut that it wasn’t right. Then they started harassing me, calling my bosses at work. It was embarrassing.”

Under the settlement with Navient, its debt will be forgiven from June. To find out if you are eligible for the settlement agreement, see the terms described at navientagsettlement.com.

Borrowers with Navient debt should not stop making payments until it is determined that their debt is eligible for settlement, experts warn.

All payments made between June 30, 2021 and cancellation will be refunded,” said Anna Helhoski, student loan expert at NerdWallet. Federal student loan borrowers eligible to receive restitution should update their contact information at studentaid.gov to make sure they get more information this spring.

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