Yost announces $1.85B settlement with student loan servicer Navient

Published 12:00 am Tuesday, January 18, 2022

COLUMBUS — Ohio Attorney General Dave Yost, along with 38 attorneys general, announced today that Navient, one of the nation’s largest student loan servicers, has agreed to a $1.85 billion settlement over allegations that it engaged in predatory practices.

The attorneys general claimed that Navient practiced unfair and deceptive student loan servicing largely by promising to help borrowers find an affordable repayment option but instead steering financially strapped borrowers into costly long-term repayment plans.

“This settlement puts money back into the pockets of borrowers struggling to pay for college,” Yost said. “It’s also an important reminder for corporations that there are consequences for prioritizing profits over the public’s best interest.”

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The settlement, submitted today to the Franklin County Court of Common Pleas as a proposed Consent Judgment, is subject to court approval.

As part of the agreement, Ohio will receive $5.3 million in restitution payments to be shared among more than 19,800 federal loan borrowers who were impacted by Navient’s practices between 2009 and 2017. Additionally, more than 3,500 Ohio borrowers will receive a combined $81.8 million in cancellation of private loan debt.

According to the attorneys general, the interest that accrued on students’ loan balances stemmed from Navient’s forbearance-steering practices, pushing borrowers further in debt. Had the company instead provided borrowers with the help it promised, income-driven repayment plans could have potentially reduced payments to as low as $0 a month, provided interest subsidies, and/or led to forgiveness of any remaining loan balance after 20 to 25 years of qualifying payments (or 10 years for borrowers qualified under the Public Service Loan Forgiveness Program).

Navient also allegedly originated predatory subprime private loans to students attending for-profit schools and colleges with low graduation rates, even though it knew that a very high percentage of these 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 were unknowingly ensnared in debt they could never repay.

The settlement requires Navient to cancel the remaining balance on more than $1.7 billion in subprime private student loan balances owed by 66,000 borrowers nationwide since 2002. In addition, Navient will pay $142.5 million to the attorneys general. 

A total of $95 million in restitution payments of roughly $260 each will be distributed to 350,000 federal loan borrowers who were placed in certain types of long-term forbearances.

Borrowers who will receive restitution or debt cancellation span generations: Navient’s predatory practices 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.

The settlement includes conduct reforms requiring Navient to explain the benefits of income-driven repayment plans and to offer to estimated income-driven payment amounts before placing borrowers into optional forbearances.

Additionally, Navient must train specialists to advise distressed borrowers about alternative repayment options and counsel public service workers about Public Service Loan Forgiveness and related programs. The conduct reforms imposed by the settlement include prohibitions on compensating customer service agents in a manner that incentivizes them to minimize time spent counseling borrowers. 

The settlement also requires Navient to notify borrowers about the U.S. Department of Education’s recently announced PSLF limited waiver opportunity, which temporarily offers millions of qualifying public service workers the chance to have previously nonqualifying repayment periods counted toward loan forgiveness — provided  that they consolidate into the Direct Loan Program and file employment certifications by Oct. 31.

Borrowers impacted by this settlement do not need to take action at this time. Borrowers receiving private loan debt cancellation will receive a notice from Navient by July 2022, along with refunds of any payments made after June 30, 2021, on the canceled private loans. Federal loan borrowers who are eligible for the estimated restitution payment of $260 will receive a postcard in the mail from the settlement administrator later in the spring.

Federal loan borrowers who qualify for relief under this settlement do not need to take any action except to update or create their studentaid.gov account to ensure that the U.S. Department of Education has their current address. For more information, visit www.NavientAGSettlement.com.

Until recently, Navient had a contract to service federal student loans owned by the DOE, including a large portfolio of loans made under the Direct Loan Program and a smaller portfolio of loans made under the Federal Family Education Loan program. On Oct. 20, 2021, the DOE announced the transfer of this contract from Navient to Aidvantage, 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.

Joining Yost in today’s settlement were the attorneys general of Arizona, Arkansas, Colorado, Colorado, Connecticut, the District of Columbia, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Nebraska, Nevada, New Jersey, New Mexico, New York, North Carolina, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Vermont, Virginia, Washington, West Virginia and Wisconsin.