Navient settlement: Student loan borrowers to get relief

Pennsylvania student loan borrowers will receive over $70 million in relief as part of a national settlement with Navient; one of the nation’s largest student loan servicers.

Navient will provide $1.85 billion to resolve allegations of unfair, deceptive, and abusive loan servicing practices. Those practices date back more than a decade, according to Attorney General Josh Shapiro.

“Navient repeatedly and deliberately put profits ahead of its borrowers; it engaged in deceptive and abusive practices, targeted students who it knew would struggle to pay loans back; and (it) placed an unfair burden on people trying to improve their lives through education,” Shaprio said in a statement.

The settlement “corrects Navient’s past behavior, provides much needed relief to Pennsylvania borrowers; and (it) puts in place safeguards to ensure this company never preys on student loan borrowers again,” he said.

About 13,000 Pennsylvania borrowers will receive $3.5 million in restitution. An additional 2,467 will receive $67 million in debt cancellation as part of the agreement. In total, the settlement will cancel $1.7 billion in subprime private student loans for nearly 66,000 borrowers nationwide. Its provisions call for $95 million in restitution for 350,000 federal loan borrowers through payments of $260 each.

READ: State news briefs

The lawsuit

A coalition of 39 attorneys general sued to resolve claims against Navient. The lawsuit claimed the lender steered students struggling to pay loans into long-term forbearances instead of explaining the benefits of more affordable income-driven repayment plans.

Navient added interest that accrued in forbearance to borrowers’ loan balances. That increased their debt, instead of helping them connect with income-driven repayment plans that could have potentially reduced payments to nothing. The income-driven repayment plans also could have provided interest subsidies; and potentially helped attain forgiveness on balances remaining after 10 to 25 years for those making qualifying payments.

The attorneys general also alleged Navient originated private predatory subprime loans to students at for-profit colleges with low graduation rates. That happened despite the high probability students would be unable to repay the loans, according to Shapiro.

“The first scheme involved Navient issuing subprime private loans to borrowers they knew could not pay the money back – similar to the mortgage crisis in 2008,” Shapiro said. “The second scheme we uncovered was Navient’s drive to mislead borrowers into forbearances; which stopped them from paying down the principal on their loan and led many to accumulate more debt and never-ending interest payments.”

In addition to the financial relief and restitution, the settlement requires Navient to better explain the benefits of income-driven repayment plans and offer estimates of payment amounts before placing borrowers into forbearances. The company also must train specialists to advise borrowers on alternative repayment options; including the Public Service Loan Forgiveness program for public service workers.

The settlement

Under the settlement, Navient must also notify borrowers about the U.S. Department of Education’s new PSLF limited waiver. That option temporarily offers millions of qualifying public service workers the ability to apply previously nonqualifying repayment periods toward loan forgiveness. That opportunity requires borrowers to consolidate into the Direct Loan Program and file employment certifications by October.

Private loan borrowers will receive a notice from Navient by July 2022 along with refunds of any payments made after June 30, 2021. Federal loan borrowers eligible for the $260 restitution payment will get a postcard in the mail from the settlement administrator this spring, Shapiro said.

[Featured image credit: Pennsylvania Attorney General Josh Shapiro testifies virtually before the Senate Appropriations Committee on April 7, 2021. Image courtesy of Senate Republican Caucus]

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