Navient, formerly one of the nation’s largest student loan servicers, reached a $120 million settlement with federal regulators on Thursday to resolve claims that it misled federal student loan borrowers and mishandled their payments for years.
The Consumer Financial Protection Bureau said the deal would permanently ban the company from managing federal student loans and require it to pay $100 million in restitution to affected borrowers along with a $20 million penalty.
The consumer watchdog’s suit had accused Navient of failing borrowers at every step of repayment: Among other misdeeds, it said the company steered borrowers away from more affordable income-driven repayment plans and into forbearance, which padded its own profits and forced borrowers to pay more than they had to.
“For years, Navient’s top executives profited handsomely by exploiting students and taxpayers,” said Rohit Chopra, the director of the consumer agency. “By banning the notorious student loan giant from federal student loan servicing and ensuring the wind down of these operations, the C.F.P.B. will finally put an end to the years of abuse.”
During a media call, agency officials said borrowers who were eligible for restitution payments did not need to do anything — the C.F.P.B. would mail checks to “hundreds of thousands” of federal student loan borrowers, after it analyzed which consumers were due payments. It’s unclear how long that will take. (The agency also warned borrowers to beware of scammers who might try to use C.F.P.B. imagery to steal money or private information.)
The settlement closes the book on two related legal actions that date back to 2017, when the consumer protection agency and two state attorneys general — backed by a coalition of attorneys general in 27 other states — sued Navient.
Navient reached a settlement in 2022 with the states, participating in a three-year investigation of student loan abuses that required it to cancel delinquent private student loan debts for more than 66,000 borrowers and pay $95 million in restitution.
The company, based in Herndon, Va., was spun off from Sallie Mae in 2014. It said it did not admit to or deny any of the allegations.
“While we do not agree with the C.F.P.B.’s allegations, this resolution is consistent with our go-forward activities and is an important positive milestone in our transformation of the company,” Navient said in a statement.
Besides being banned from servicing federal direct loans, if entered by the court, the settlement would also prohibit Navient from directly servicing or acquiring most loans under the Federal Family Education Loan Program.
At the time the suits were filed, Navient handled $300 billion in private and federal loans for about 12 million people, including more than six million accounts under its contract with the Department of Education. It did not make student loans to federal borrowers, but held contracts to collect payments each month on behalf of banks, the government and other lenders.
Navient ended its federal student loan servicing business in 2021, and this deal is an attempt to ensure it will not return.
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