Navient reaches $2B student loan settlement with bipartisan group of 40 AGs

Michael Stratford

Navient, one of the nation’s largest student loan companies, has reached a nearly $2 billion settlement with a bipartisan group of 40 attorneys general to resolve allegations that it made predatory private loans and illegally pushed federal student loan borrowers into higher-cost repayment plans.

The sweeping settlement, announced Thursday, requires Navient to cancel the private loan balances of about 66,000 borrowers, many of whom attended for-profit colleges, and to pay restitution to about 350,000 federal student loan borrowers whom it placed in certain types of forbearance plans.

“Navient knew that people relied on their loans to make a better life for themselves and for their children — and instead of helping them, they ran a multibillion-dollar scam,” said Pennsylvania Attorney General Josh Shapiro, who led the settlement, which involves 39 states and the District of Columbia.

Shapiro, who is running for governor in Pennsylvania, is among a group of Democratic attorneys general who for years have been scrutinizing Navient and other student loan servicers. The attorneys general of Massachusetts, Illinois, California, and Washington state, all Democrats who co-led the settlement, had pending lawsuits against Navient.

The settlement is notable for how much Republican support it attracted. The GOP attorneys general of Florida, Arizona, Tennessee and Georgia were among those signing onto the deal, making it one of the most sweeping bipartisan actions against the student loan industry in recent years.

The group of state attorneys general accused Navient of abuses both in its older private student lending business and its work on behalf of the Education Department managing the accounts of federal student loan borrowers.

Navient, then operating as Sallie Mae, in the early to mid-2000s made subprime private loans to students even though the company knew many would not be able to repay the debt, according to the states’ lawsuits. As part of the settlement, Navient will cancel a total of $1.7 billion owed by those borrowers, many of whom attended for-profit colleges.

In addition, the states accused Navient of orchestrating a scheme to push federal student loan borrowers into forbearances without telling them about income-driven repayment options that could have been far more beneficial to struggling borrowers. The company agreed, as part of the deal, to pay $95 million in restitution that will be provided to some 350,000 borrowers who were placed into certain types of forbearances even though they were eligible for income-based repayment.

Navient denies the allegations made by the state attorneys general and said it agreed to the settlement to avoid the cost of further litigation.

“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,” Mark Heleen, the company’s chief legal officer, said in a statement. “Navient is and has been continually focused on helping student loan borrowers understand and select the right payment options to fit their needs. In fact, we’ve driven up income-driven repayment plan enrollment and driven down default rates, and every year, hundreds of thousands of borrowers we support successfully pay off their student loans.”

Education Department officials in October approved a two-year extension of Navient’s contract before ultimately signing off on a deal to transfer the company’s roughly 5.5 million loan servicing accounts to a different company, Maximus. Although the company no longer manages those student loans held directly by the Education Department, it still services some student loans made by private lenders that are guaranteed by the federal government.

The states’ settlement with Navient does not resolve a separate lawsuit brought by Consumer Financial Protection Bureau that alleges similar predatory practices in student loan servicing. That case, filed in the waning days of the Obama administration, remains pending in federal court.

Navient for years has been a prime target of progressives, led by Sen. Elizabeth Warren (D-Mass.), who previously called for the Education Department to fire the company. But the settlement announced Thursday is one of the first major bipartisan condemnations of the company’s federal student loan servicing practices.

Florida Attorney General Ashley Moody, a Republican, praised the settlement for putting Navient’s predatory practices to an end, saying that Navient had “steered distressed borrowers to costly long-term forbearances — pushing them further into debt and financial hardship.”

“Student loan servicing in many respects is just a mess,” Tennessee Attorney General Herbert H. Slatery III , a Republican, said in a statement. “And predatory lending is worse.”

The participation by GOP attorneys general in the deal comes after the Trump administration for years tried to block states from bringing the types of lawsuits against federal student loan servicers that resulted in Thursday’s settlement. Richard Cordray, the head of the Office of Federal Student Aid, scrapped those Trump-era policies last year and has encouraged state oversight of companies like Navient.

The Education Department on Thursday declined to say whether it would take further action against Navient or provide borrowers with additional relief in response to the settlement.

“We are pleased to see the outcome of this case and look forward to continuing our work with state and federal regulators to create higher standards for servicers and address servicing practices that hurt borrowers,” Fabiola Rodriguez, a department spokesperson, said in a statement.

California Attorney General Rob Bonta, a Democrat, said on Thursday that he hoped that the Education Department would provide “broader relief for borrowers.” He praised the Biden administration’s previous efforts to help borrowers “wronged by prior servicing failures.”

Bonta also said that he hoped the Navient settlement, which requires the company to change some loan servicing practices, would serve as “a template for reform across an industry in desperate need of it.”

Consumer advocates on Thursday also hailed the settlement.

Mike Pierce, the executive director of the Student Borrower Protection Center called the settlement a “hard-fought battle” to remedy Navient’s “long history of abuse” of student loan borrowers. “Today’s action is a clear victory for many of the millions of borrowers whose pain Navient and Sallie Mae shamelessly turned into profit,” he said in a statement.