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Student loan company Navient has agreed to forgive $1.7 billion in private student loans and will pay $95 million in restitution after a lawsuit accused the company of steering struggling borrowers into more debt, officials announced Thursday.
New York Attorney General Letitia James claimed in a lawsuit — filed simultaneously with the settlement — that since 2009, the company deceived thousands of financially struggling customers with federal debt so that they would opt for expensive, long-term forbearance plans instead of informing them of more affordable options.
In the end, the borrowers ended up with even more debt rather than what the income-driven repayment plans variously offered, including lowering monthly payments to as little as $0, subsidies on interest and eventual student loan forgiveness after 20 to 25 years, the suit claims.
The AG also accused Navient of giving students of universities with low graduation rates subprime private loans knowing that most of the students wouldn’t be able to repay them. Navient used the subprime loans in an effort to get the schools to choose Navient as their preferred lender, the suit claims.
Without admitting any wrongdoing, Navient settled the suit, agreeing to forgive $1.7 billion in subprime private loans for 66,000 borrowers nationwide. The company will also pay back $95 million to 350,000 federal loan borrowers — or $260 each — who were allegedly steered into the expensive forbearance plans.
The company will also pay $142.5 million to different states — as the settlement was negotiated with a coalition of 39 other state attorneys general.
Navient also agreed to reform its practices by telling borrowers about income-driven repayment options before placing them on forbearance.
“Navient will no longer be able to line its pockets at the expense of students who are trying to earn a college degree,” James said in a statement.
In the agreement, Navient denied the claims.
“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 chief legal officer Mark Heleen said in a prepared 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,” Heleen continued.
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