Navient will pay $100 million to student-loan borrowers in landmark settlement. Here's how you'll get your cut.

By Jillian Berman

The settlement resolves a lawsuit filed by the CFPB in 2017, which claimed the company led borrowers astray

Navient Corp. will pay $120 million to settle allegations it steered student-loan borrowers away from affordable repayment plans they were entitled to under the law.

As part of an agreement with the Consumer Financial Protection Bureau announced Thursday, the company (NAVI), which was once one of the largest federal student-loan servicers, is also banned from servicing federal student loans and from acquiring older privately held loans that are part of the federal student-loan system. Navient largely exited the federal student-loan servicing business in 2021.

"We are closing the book on Navient, one of the worst offenders in the student-loan servicing industry," Rohit Chopra, the CFPB's director, said on a conference call with reporters.

The order resolves a lawsuit filed by the CFPB in 2017. The suit spoke to one of the main complaints that advocates have had for years about federal student-loan servicers - that they put obstacles in the way of borrowers successfully repaying their loans and accessing the benefits of the student-loan program that they are entitled to, like lower payments and debt relief. Servicers have said that borrowers' challenges in navigating student-loan repayment often stem from the complicated nature of the federal student-loan program. They have also said they operate at the direction of the government.

As part of the deal, Navient will pay $100 million to consumers. Borrowers affected by the settlement announced Thursday will receive a check from the CFPB, the agency said. Borrowers don't have to take action and they should stay alert to scams, according to the CFPB. The CFPB expects that hundreds of thousands of consumers will receive relief.

In addition, the CFPB's allegations and similar claims from state attorneys general helped push the Department of Education to provide redress to borrowers who were steered away from affordable repayment programs. As part of these efforts, the Biden administration has canceled more than $50 billion in debt for more than 1 million borrowers.

In the 2017 complaint, the CFPB alleged that Navient steered struggling borrowers away from income-driven repayment, a federal program that allows borrowers to repay their debt as a percentage of their income and have the remainder canceled after a set number of years of payments. Instead, the CFPB alleged that Navient pushed borrowers toward forbearance. Forbearance pauses student-loan payments, but interest still accrues. In addition, borrowers in forbearance don't build credit toward student-loan forgiveness.

The CFPB alleged that Navient's business model encouraged this, because call-center representatives were compensated in part based on average call time. Walking a borrower through signing up for income-driven repayment typically takes much longer than enrolling them in forbearance, meaning that customer service representatives were incentivized to steer borrowers toward forbearance, the CFPB alleged.

"To keep costs low, Navient encouraged its employees to push borrowers into forbearance, a much quicker and cheaper option for the company," Chopra said on the call. "This approach allowed Navient to process more calls in less time and get people off the phone."

Chopra added: "It came at a severe cost to borrowers whose balances swelled with accrued and capitalized interest."

In the years leading up to and following the lawsuit, Navient had been a frequent target of criticism from borrower advocates and lawmakers. The company stopped servicing federal student loans in 2021 amid this criticism.

Paul Hartwick, a Navient spokesperson, wrote in a statement that while the company does not agree with the CFPB's allegations, the settlement "is an important positive milestone in our transformation of the company."

"This agreement puts these decade-old issues behind us," Hartwick wrote.

Navient previously reached a settlement in 2022 with 39 state attorneys general over similar allegations. As part of that deal, the company also canceled $1.7 billion in private student loans that the attorneys general alleged were made under predatory circumstances.

Over the past several months, Navient has faced some criticism over a portfolio of loans the company owns that were allegedly made as part of packages to borrowers to convince them to take out federal student loans to enroll in unscrupulous schools. Navient has quietly offered a path toward debt relief for those borrowers.

Navient transferred servicing of its privately held loans to the Higher Education Loan Authority of the State of Missouri, known as MOHELA. Hartwick said Navient will "oversee its third-party servicing provider to meet all operational terms of the agreement."

-Jillian Berman

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09-12-24 1023ET

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