New York Attorney General Letitia James announced on Jan. 14, a $1.85 billion agreement with one of the nation’s largest student loan servicers, Navient,
after it deceived thousands of student loan borrowers into costly, long term, forbearance plans, causing students to pay more than they should have. A bipartisan coalition of 39 attorneys general negotiated the multistate agreement that cancels $1.7 billion in private student loan debt and recovers $95 million in restitution for thousands of students nationwide.
“For too long, Navient contributed to the national student debt crisis by deceptively trapping thousands of students into more debt,” said James. “Today’s billion-dollar agreement will bring relief to thousands of borrowers in New York and across the nation and help them get back on their feet. Navient will no longer be able to line its pockets at the expense of students who are trying to earn a college degree. Student loan servicers that operate through deception and wrongdoing will not be tolerated and will be held accountable by my office.”
A multistate investigation into Navient found that, since 2009, the company has been steering struggling student loan borrowers into costly, long-term forbearances instead of counseling them about the benefits of more affordable income-driven repayment plans. The interest that accrued because of Navient’s forbearance steering practices was added to the borrowers’ loan balances, pushing students further in debt. Had the company instead provided borrowers with the help it promised, income-driven repayment plans could have reduced payments to as low as $0 per month, provided interest subsidies, and/or helped attain forgiveness of any remaining balance after 20 to 25 years of qualifying payments (or 10 years for borrowers qualified under the Public Service Loan Forgiveness Program).
The investigation found that Navient also provided predatory, subprime, private loans to students attending for-profit schools and colleges with low graduation
rates, although the company knew that a very high percentage of those borrowers would be unable to repay the loans. Navient allegedly made these risky subprime loans as “an inducement to get schools to use Navient as a preferred lender” for highly profitable federal and “prime” private loans, without regard for borrowers and their families, many of whom it unknowingly ensnared in debts they could never repay.
Under the terms of the agreement, Navient will cancel the remaining balance on nearly $1.7 billion in subprime, private student loan balances owed by nearly
66,000 borrowers nationwide. Additionally, a total of $95 million in restitution payments, of about $260 each, will be distributed to approximately 350,000
federal loan borrowers who were placed in certain types of longterm forbearances. Borrowers who will receive restitution or debt cancellation span all generations, as Navient’s harmful conduct impacted everyone from students who enrolled in colleges and universities immediately after high school to mid-career students who dropped out after enrolling in a for-profit school in the early to mid-2000s.
Navient will also be forced pay $142.5 million to the states as part of this agreement. New York will specifically receive a total of about $6.8 million in restitution payments for more than 25,000 federal loan borrowers. Additionally, about 4,300 New York borrowers will receive over $110 million in private loan debt cancellation. New York state will also receive almost $1.2 million in cash.
The agreement also includes conduct reforms that require Navient to explain the benefits of income-driven repayment plans and to offer to estimate income-
driven payment amounts before placing borrowers into optional forbearances. Additionally, Navient must train specialists who will advise distressed
borrowers concerning alternative repayment options and counsel potentially eligible workers. The conduct reforms imposed by the agreement include prohibitions on compensating customer service agents in a manner that incentivizes them to minimize time spent counseling borrowers.
As a result of the agreement, borrowers receiving private loan debt cancellation will receive a notice from Navient, along with refunds of any payments made on
the cancelled private loans after June 30, 2021. Federal loan borrowers who are eligible for a restitution payment of approximately $260 will receive a postcard in the mail from the settlement administrator later this spring.
Federal loan borrowers who qualify for relief under this agreement do not need to take any action other than updating or creating their studentaid.gov account
to ensure the U.S. Department of Education has their current address. Borrowers can learn more about today’s agreement online. Consumers who are confused
about or would like to learn more about their student loans can do so at the National Consumer Law Center’s Student Loan Borrowers Assistance Project.
Until recently, Navient had a contract to service federal student loans owned by the U.S. Department of Education, including a large portfolio of loans
made under the Direct Loan Program and a large portfolio of loans made under the Federal Family Education Loan, FFEL, program. On Oct. 20, 2021, the
U.S. Department of Education announced the transfer of this contract from Navient to Aid-Vantage, a division of Maximus Federal Services, Inc. However,
Navient will continue to service federal student loans made under the FFEL Program that are owned by private lenders, as well as non-federal private student
loans. (Sumitted)
