Student loan company accused of predatory lending cops to $1.85 billion deal
Navient Corp. committed Thursday to canceling $1.7 billion in private student loans for 66,000 borrowers across the country as part of settlement with 38 attorneys general from states and the District of Columbia over lending practices and payment plans said to be abusive and predatory.
In a statement praising the settlement, the U.S. student loan giant better known to its customers as Sallie Mae said it did not violate any laws, including consumer-protection laws.
“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,” Navient’s chief legal officer Mark Heleen 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.”
The settlement, which separately requires Navient to pay out $95 million to 350,000 long-term forbearance borrowers, still require court approval in the U.S. District Court for the Middle District of Pennsylvania.
Navient will also make a one-time payment of $145 million to the states — a portion of which will reimburse them "for their costs with the remaining funds" that states are using to pay certain student loan borrowers at their discretion. It is Navient's estimate, the company says, that "these costs are substantially lower than the expected costs of ongoing state-by-state litigation and investigations."
U.S. District Judge Robert Marian is presiding over the case, which was one of a flurry brought by states and the Consumer Financial Protection Bureau in 2017.
"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 placed an unfair burden on people trying to improve their lives through education,” Pennsylvania Attorney General Shapiro in a statement on the agreement Thursday. “Today’s settlement corrects Navient’s past behavior, provides much needed relief to Pennsylvania borrowers, and puts in place safeguards to ensure this company never preys on student loan borrowers again.”
Sallie Mae announced the creation of Navient in 2014 as an offshoot under the umbrella of SLM Corp, splitting up the so that Sallie Mae would focus on private student loans and Navient would focus on federal and private student loans. The settlement resolve lawsuits that date back to 2009.
Shapiro and the other attorneys general underlined Thursday that the loan practices of the Wilmington-based Navient “steered struggling student loan borrowers into costly long-term forbearances instead of counseling them about the benefits of more affordable income-driven repayment plans.”
Other bad behavior that the states called out was the pressure that Navient put on colleges and universities to put pitch it to students on a list of “preferred lenders.”
Navient says it will notify the affected borrowers and co-borrowers as soon as the settlement is court approved. Shaprio’s office noted that more details will be available online.
In addition to Pennsylvania, the states included in the litigation are Washington, Illinois, Massachusetts, and California, and was joined by attorneys general in Arizona, Arkansas, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Michigan, Minnesota, Missouri, Nebraska, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio, Oregon, Rhode Island, South Carolina, Tennessee, Vermont, Virginia, West Virginia, Vermont and Wisconsin.