Navient Cancels $1.7 Billion in Student Loans for Unfair Practices
- Author: Jeffrey Simmons
- Posted: 2024-06-25
The Attorney General of thirty-nine states announces a settlement of a consolidated lawsuit against Navient, the large federal student loan servicing company. To resolve the case, Navient agreed to cancel student loan repayment for about 66,000 student borrowers and pay restitution amounting to a further $800 million. While not admitting wrong or fault, Navient agreed to settle claims that it misled student borrowers and engaged in predatory lending.
A Record of Misleading Student Borrowers
The core of the complaints against Navient lay in its performance in contrast to its obligations to students. Navient undertook a duty to work with student borrowers and develop helpful solutions to repayment problems. The case evidence demonstrated that Navient placed its interests ahead of the students they served.
First, the states argued that Navient placed student borrowers into expensive forbearance when counselors could have used individual, income-driven repayment plans. Beginning in about 2009, the complaints claim that Navient directed struggling borrowers into forbearance programs that offered relief but at the cost of piling on interest.
Instead, the company should have helped students by using income-driven repayment plans that could have reduced payments to zero. Further, the case demonstrated that Navient failed to help student obtain forgiveness of remaining balances after years of qualified payments or public service.
Second, that Navient and its predecessor Sallie Mae made subprime private loans to vulnerable borrowers knowing those borrowers were likely to default. The legal actions described this class of loans as predatory. The lenders took unfair advantage of the borrowers by providing funds through for-profit schools with extremely low graduation rates.
The suits allege that Navient and its predecessor knew that subprime borrowers were unlikely to be able to repay their debts. Navient issued the loans to the for-profit schools to engage them as regular partners for a wide range of other loans. The subprime loans created a strong preference for Navient for all other loan programs.
Actions Created Debt Traps
The use of forbearance harmed student borrowers, and the range included mid-career persons and recent high school graduates. Forbearance adds interest that accrues during any period of excused payments. Steering borrowers into forbearance added to their debt burdens when alternatives could have reduced payments and avoided excessive interest charges.
Federal rules and authorities provided for a range of more favorable options including forgiveness, public service forgiveness, and income-driven repayments that reflected the borrower's ability to pay. Instead, the use of forbearance placed borrowers in deeper debt without addressing their ability to pay or eligibility for forgiveness.
The Attorneys general presented arguments that subprime loans benefited the for-profit schools at the expense of student borrowers and their families. The for-profit schools had low graduation rates and the student borrowers were unlikely to repay without successfully completing education and getting high-paying jobs. The subprime loans increased enrollment and created a favorable business climate for Navient with the for-profit schools.
Cancellation and Reimbursement
Navient made subprime private loans through for-profit schools with low graduation rates. The settlement requires Navient to cancel the remaining balances on about $1.7 Billion on private student loans. This cancellation benefits about 66,000 borrowers across the United States. In addition, this settlement includes restitution payments to more than 350,000 borrowers placed in forbearance programs.
Federal Student Loan Forgiveness
The Public Service Loan Forgiveness program is a Department of Education policy that grants student loan forgiveness in proportion to years of qualified public service. Part of the CoVID-19 relief effort, the DOE permitted borrowers to consolidate loans and receive credit for past periods of payment towards public service forgiveness. The modification has potential benefits for borrowers otherwise excluded from these payment credits.
Reform and Change In Student Debt
Student debt is a significant issue in the United States. The overall amount of student debt is about $ 1.59 trillion, and it involves more than 42 million American families. For many student loan borrowers and their families, student debt is a burden that affects family, business, and employment prospects.
The settlement involves more than reimbursement and loan cancellation. The loan servicer agreed to change its operations. Going forward, Navient agreed to advise borrowers of alternatives to loan forbearance such as income-related repayment plans. The company must also provide estimates of income -driven plans before placing a borrower's account into do forbearance.
Navient will exit the federal student loan servicing program. In September 2021, the company announced it would end its role in student loan repayment services.