Navient to cancel $1.7 billion in private student loans as part of settlement with 39 attorneys general

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Roughly 66,000 borrowers will see their private student loans canceled — a total of more than $1.7 billion in relief — thanks to a deal between 39 state attorneys general and student loan giant Navient NAVI,
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In addition, the settlement would provide nearly $95 million in payments to 350,000 federal student loan borrowers, which Navient reportedly said led to unnecessarily costly repayment programs.

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The settlement wraps up years of legal battles between the state consumer attorney general and Navient over the company’s treatment of student loan borrowers. The lawsuits filed in various states detailed allegations about the company’s dealings in several aspects of the student loan business, including originating private student loans and servicing federal student loans — a business that the company exited last year. Was. This settlement does not address a lawsuit filed by the Consumer Financial Protection Bureau against Navient in 2017.

Pennsylvania Attorney General Josh Shapiro told reporters, “The bottom line is, Navient knew that people depended on their debt to make better lives for themselves and their children and instead of helping them, they scammed several billion dollars.” ” ,

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In a statement, Navient’s chief legal officer, Mark Helen, called the claims addressed to the deal “unfounded,” adding that the settlement allows the company to “avoid additional burden, expense, time and distraction in court.”

“Naviante continues to focus on helping student loan borrowers understand and choose the right payment options to meet their needs,” Helen said.

Navient denied wrongdoing as part of the deal. Still, the attorney general insisted that he would have won in court if the trial had continued.

“It doesn’t matter what they accept or don’t accept,” said Shapiro, who is also running for governor of Pennsylvania, “actions speak louder than words.” In Pennsylvania, a judge rejected Navient’s motion to dismiss the case in 2020. In Washington, a court found last year that Navient had violated consumer protection law. The ruling surrounds one of the charges that were part of a lawsuit filed in 2017 by Washington Attorney General Bob Ferguson’s office. That lawsuit was settled as part of a deal announced Thursday.

“I have no doubt what the outcome would have been if we had gone through the time and expense of litigation, but it was important to balance that with immediate relief for borrowers,” Ferguson told reporters. “Whether they want to take responsibility for what they did is up to them, but I know a judge here ruled that they violated the law.”

Deal shrugs off charges of private loans ‘doomed to fail’

The bulk of the relief — $1.7 billion in canceled private loans — relates to allegations made by several state attorneys around the behavior of Navient’s corporate predecessor, Sally Mae, in originating some private student loans after 2002.

A lawsuit filed by Shapiro in 2017, one of the settlement’s addresses, alleged that during the early and mid-2000s, Sally Mae used loans to borrowers she knew had a potential to default. There was a high probability, as a way, to generate more federal student loan business. At the time, colleges could provide a “favourite list” of lenders to students and families. For lenders, a high spot on the college’s preferred lender list means a nearly guaranteed stream of business.

To appeal to schools, Navient’s corporate predecessor reportedly offered them a package of loans that included prime private student loans, subprime private student loans and family federal education loans (or FEELP loans) – federal student loans that lenders offer. originated but were supported by the federal government.

The packages were attractive to schools because they offered a way for borrowers who would not normally qualify for a private loan, allowing them to enroll to fill the gap between federal loans and the cost of tuition. gives. For Navient, the suit claimed, subprime private loans — with interest rates up to 15.75% — were a “loss leader” giving them access to attractive FFELP loan amounts.

Shapiro’s office alleged that between 2000 and 2006, the company saw major growth in its core business, particularly for students attending college, including for-profit schools that had graduation rates of less than 50%. Between 2000 and 2007, 68% to 87% of these loans defaulted, the suit claimed.

“These loans were doomed to fail from the start, and Navient knew it,” Massachusetts Attorney General Maura Healy told reporters.

Bargain Address Practices Borrower Advocates and Regulators Have Wept for Years

The agreement also addresses the conduct in federal student loan servicing that borrower advocates and regulators have decried for years. Federal student loan borrowers have access to repayment plans that allow them to pay off their loans as a percentage of income, but advocates and borrowers allege that servicing distressed borrowers toward forbearance instead. – a situation where payments are withheld but interest accrues – in order to save time and money.

Forbearance, as a short-term fix for financial distress, can be costly for borrowers because of the additional interest, which is capitalized when the borrower exits the forbearance. For example, in a 2017 Pennsylvania suit, Shapiro’s office alleged that a Navient borrower who was in and out of forbearance for 11 years added $27,000 of interest to his loan balance as a result.

When borrowers who were in financial trouble “would reach out to Navient to seek help, what Navient did was defraud them,” Ferguson said. Because of poor advice, these borrowers “paid interest on that interest and went into debt,” he said. They also missed eligible payments to discharge their loans under certain programs such as Public Service Loan Forgiveness.

The settlement would provide some relief to borrowers who were reportedly headed for forbearance if they were eligible for a less expensive repayment program. But it is not clear whether the Department of Education, which has the debt disputed in this part of the agreement, will take separate steps to address any allegations. The agency did not immediately provide any comment.

The pressure is on Education Secretary Miguel Cardona to address the issue, said Mike Pierce, executive director of the Student Borrower Protection Center, a borrower advocacy group. Now that the bipartisan coalition of 39 state attorneys general said “tolerance-operating is a huge problem and Navient broke the law,” Pierce said, it’s up to the agency to “figure out what to do with it now.” ”

“It is a big problem and it needs a big solution and only the education department can solve it,” he said.

California Attorney General Rob Bonta said that although the settlement is an important step, “we see the Department of Education to step in as well.” He praised the agency’s work in addressing other challenges facing borrowers in the student loan service system, including expanding the loan forgiveness program for public servants, adding that he hopes “here too we Borrowers can get comprehensive relief.”

Eligible borrowers will not have to take any steps to get relief. In case of personal loan cancellation, Navient will send a notice to borrowers along with a refund of any payments made on the loan by June 30 this year. Eligible federal student loan borrowers will receive a postcard in the mail regarding the settlement. They need not take any action to get relief but must ensure that their account is on studentaid.gov And that their contact information is accurate.

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