Thousands of student loan borrowers are expected to receive long-sought debt relief through a $1.85 billion consent judgment announced Thursday with Navient, one of the nation’s largest student loan companies.
If approved by a federal court, the agreement between the Delaware-based company and attorneys general for 39 states and the District of Columbia would resolve state allegations that Navient used unfair, deceptive and abusive student loan servicing practices in originating predatory loans.
The agreement would cancel the outstanding student loan balances of roughly 66,000 borrowers with private education loans that were started between 2002 and 2010, when Navient was known as Sallie Mae.
Additionally, 350,000 federal student loan borrowers are expected to receive $260 each from a $95 million restitution payment from Navient. The borrowers, who struggled to repay, were placed in forbearance programs that plunged them into deeper debt, rather than less costly income-based payment plans.
Most of those students had been enrolled in for-profit educational institutions, such as Corinthian Colleges and ITT Technical Institutes, which later closed when the federal government stopped lending at the schools.
Pennsylvania Attorney General Josh Shapiro, who helped lead the states’ legal coalition, said the agreement would provide “much needed relief” to student loan borrowers.
“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 in a statement announcing the agreement.
However, Navient denied any wrongdoing and said the company agreed to the settlement because the state lawsuits began more than eight years ago and were nowhere near the trial stage.
“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. “Navient is and has been continually focused on helping student loan borrowers understand and select the right payment options to fit their needs.”
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A separate U.S. Consumer Financial Protection Bureau lawsuit filed against Navient with similar allegations is continuing. The company has also denied wrongdoing in that case.
The settlement also includes reforms that would require Navient to explain the benefits of income-driven repayment plans before placing student loan borrowers into forbearance programs. The company also would be required to counsel borrowers who are now in public service jobs about a federal loan forgiveness program that could help eliminate their debts.
Mike Pierce, the executive director of the Student Borrower Protection Center, called the agreement a victory.
“At long last, the student loan borrowers who had been forced to shoulder the burden of dangerous and predatory private student loans made by Sallie Mae and owned by Navient will finally be debt free,” said Pierce.