Navient reaches $1.85 billion settlement over predatory loan claims

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Navient, once one of the nation’s largest student loan servicing companies, has reached a $1.85 billion settlement with 39 states to settle claims that it made predatory loans that plagued borrowers crippling debts that were highly unlikely to be repaid.

The agreement, announced Thursday, requires Navient to write off $1.7 billion in delinquent private student loan debt 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, prosecutors said.

“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 imposed a burden unfair to people trying to improve their lives through education,” said Josh Shapiro. , the attorney general of Pennsylvania, one of several states that had sued Navient.

Most of those who took out the loans that will be canceled as part of the settlement attended for-profit schools — like the defunct ITT Technical Institute — that often have low graduation rates and poor placement records. The private loans were — in Navient’s own words, according to the legal documents — a “baited hook” to attract more federally-backed loans.

In some schools, Navient predicted that more than 90% of loans would be in arrears. But what it lost on private loans was more than offset by what it gained on federal loans – guaranteed by the government – ​​that students at those schools took out.

Under Department of Education rules, no more than 90% of a school’s tuition can come from federal funding. The private loans were intended, according to court documents, to fill that gap and attract students who would then take out the lucrative federal loans that the schools — and Navient — had relied on.

Navient, who admitted no wrongdoing in the settlement, said in a press release that he did not act illegally. “The company’s decision to resolve these issues, which were based on unsubstantiated claims, allows us to avoid the additional burden, expense, time and distraction that prevails in court,” said Mark Heleen, chief legal officer of Navient.

The agreement, which only covers borrowers in participating states and Washington, D.C., ends much of a series of related lawsuits that began five years ago when federal prosecutors and state sued the company, which was at the heart of the student debt. collection system.

The Consumer Financial Protection Bureau sued in federal court over what it called Navient’s mistakes and tactics that inflated borrowers’ bills by billions of dollars. Several state attorneys general have also filed lawsuits claiming that Sallie Mae — Navient’s predecessor company, which it spun off in 2014 — made risky private loans to borrowers it knew had a weaker credit and were likely to default.

Those claims are the focus of the settlement that was announced Thursday, but it also resolved state accusations that Navient inflated borrowers’ bills by steering federal borrowers into costly long-term forbearance instead of higher repayment plans. affordable based on income. The deal calls for payments of around $260 per person to be distributed to 350,000 borrowers who have been placed in certain forbearance programs. The Consumer Affairs Office’s lawsuit, which is also focused on those claims, is continuing.

Under the agreement, which was submitted to the U.S. District Court for the Intermediate District of Pennsylvania for approval, Navient will also pay participating states $145 million.

If the settlement is approved, Navient will notify the borrowers whose debts will be forgiven. Details of the agreement have been published by participating states on a new website, NavientAGsettlement.com.

The loans that will be cancelled, according to the proposed settlementare delinquent loans made in 2002 and thereafter to borrowers at certain for-profit schools or through Navient initiatives, including its “Opportunity” and “Recourse” programs. Eligible schools include big for-profit chains like ITT and Corinthian Colleges – both of which collapsed – as well as Bridgepoint Education, DeVry University and Education Management Corporation.

But some who attended these schools will always be left out: Navient has agreed to eliminate the remaining balance on these loans only for people in the locations that participated in the agreement. Eleven states, including Texas, did not participate.

Students living in participating locations who attended public universities but received “non-traditional” loans – defined in the regulations as those given to borrowers who had a credit score below 640 at the time the loan was issued – will also be eligible to have their delinquent loans cleared. outside.

Notably, students who were current on their loans as of June 30, 2021 — meaning they are still paying their bills — will not have their loans cancelled. Representatives for Mr. Shapiro, the Pennsylvania attorney general, did not immediately respond to a question about why those loans were excluded from the settlement.

While the eliminated loans will be a great relief to the borrowers who took them out, most of the debt that Navient agrees to write off are long overdue loans that were already unlikely to be repaid. Navient valued the $1.7 billion it agreed to forgive at just $50 million — the total it expected to be able to recover, the company said in a regulatory filing Thursday.

The Federal Consumer Affairs Office declined to comment on Thursday. Navient appeared willing to resolve the bureau’s investigation in the final months of the Obama administration, but talks broke down after President Donald J. Trump won in 2016. The agency, long the target of Republican criticism, Navient sued two days before Mr. Trump’s inauguration and litigation survived his administration.

Navient decided last year to withdraw from the federal student loan business. She terminated her contract with the Department of Education, allowing the company to transfer its 5.6 million borrowing accounts to a new provider, Maximus, which operates as Aidvantage.

But the company retained a portfolio of private student loans worth billions of dollars, and later took over that line of business. Navient has issued $17 billion in new private loans since splitting from Sallie Mae.

“This is a huge win for people in debt,” said Mike Pierce, executive director of the Student Borrower Protection Center. “We’ve spent a lot of time thinking about and discussing how to fix the federal student loan system, and we often don’t know how many extremely economically vulnerable people are stuck with these private student loans that are doomed. failure.”

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