Navient, one of the largest student loan services companies in the United States, has reached a $1.85 billion settlement with a coalition of attorneys general who have accused the company of predatory lending practices.
The payment, which will be used to forgive certain student loans and payments, settles a series of lawsuits that date back to 2017. Several states have accused Navient of steering students into repayment plans with exorbitant interest rates, targeting specifically students with poor credit who were attending for-profit schools with low graduation rates.
Under the settlement, 66,000 people from 39 states and Washington DC, many of whom attended for-profit schools and previously defaulted on their loans, will have their debts forgiven, according to the Washington Post.
Another 350,000 federal borrowers who have been subject to specific types of long-term forbearances will receive part of the settlement — worth $260 per borrower — as part of the company’s payment. In total, Navient is expected to pay $1.7 billion in loan forgiveness and $95 million in payments.
“The predatory practices used by Navient exploited students who wanted nothing more than an education. The company placed borrowers in risky subprime loans, forcing them to take on debt they could never repay,” said Michigan Attorney General Dana Nessel, one of the attorneys general who sued Navient, in a declaration Thursday. “This settlement reflects the responsibility of affected borrowers across the country.”
Attorneys general have accused Navient of encouraging students to take costly abstentions instead of directing them to better repayment plans to pay off their loans. Borrowers who signed up for forbearances between January 2010 and March 2015 racked up more than $4 billion in interest after forbearance plans saw accrued interest add to existing loan balances, lawsuits say .
The bulk of the loans in question were handled by student loan company Sallie Mae, whose loan servicing operations eventually branched out in 2014 to Navient, which absorbed the liabilities of most of the assets related to the branch of loan management from Sallie Mae.
Until last fall, Navient was the largest provider of federal student loan services under contract with the Department of Education. In a big shake-up, Navient declined to renew its contract and opted to transfer its 5.6 million federal loan accounts to Maximus, a different loan-serving operation.
Despite the settlement, Navient denied any wrongdoing and said it opted for a settlement instead of paying the cost of resolving each individual lawsuit.
“It’s really about eliminating a long, distracting and expensive process,” Navient CEO Jack Remondi told The Washington Post. “With the ability to explicitly deny the claims that have been made in these cases and the harm to the borrower, I think it is remarkable that we are not abandoning our defense here. We just agree that it it’s time to move on.