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Student-loan processor Navient agrees to $1.8 billion deal with states over predatory practices

39 state attorneys general, including Penn State’s Josh Shapiro and Andrew J. Brooke, New Jersey, has agreed to a $1.85 billion settlement with student loan processor Navient over allegations that it directed borrowers into loans they could not repay and failed to provide, officials said Thursday.

Under the terms of the settlement released Thursday, Wilmington-based Navient will cancel the remaining balance of nearly $1.7 billion in high-risk private student loan balances owed by more than 65,000 borrowers nationwide. That was a debt that has likely been hurting borrowers’ credit scores for years. Collectively, the cancellation represents the agreement’s greatest consumer benefit.

An additional $95 million in compensation will be paid to nearly 350,000 federal student borrowers whose loans for two consecutive years have been put into bearing, resulting in higher loan balances. That comes to about $260 per borrower, the attorney general said.

According to Shapiro, Navvent allegedly created massive private subprime loans for students attending for-profit schools and colleges even though its executives knew that many borrowers would not be able to repay the loans. Shapiro described the practice as similar to how lenders in the subprime mortgage crisis made loans to homebuyers they couldn’t repay, leading to foreclosures and the financial meltdown of 2008.

Navint said in a statement that the allegations were unfounded, that she did not admit wrongdoing, and that she settled to save on litigation costs. “The agreements include an express denial of claims and no harm to the borrower on the part of the company,” Naviant said.

“These lawsuits began more than eight years ago, yet we are still far from our day in court,” Navent officials added. “We have taken this decision to avoid the burden, expense, time and distraction that it would require to resolve these claims through individual state litigation and investigations.”

Last year, Navient abandoned its student loan processing contract with the US Department of Education. More than five million borrowing accounts will soon be transferred to Maximus, a rival company that provides government loan services.

Federal student loan borrowers are expected to resume payments in May 2022 after a pause due to the pandemic.

Neither Navient nor the state attorney general can cancel federal student loans. But under the deal announced Thursday, Navient will cancel some eligible private loan balances for borrowers who have defaulted.

The company said that nearly all of these private loans were originated between 2002 and 2010 by Sallie Mae, which separated from student loan services at the Navient establishment in 2014. Loan borrowers do not need to take any action to qualify for the exemption. Navient, or a settlement official, will send a letter by July 2022 to every eligible private loan borrower, according to a press release describing the settlement and prosecutors who participated in a national press conference on Zoom.

The 45-page settlement with multiple provisions is the latest measure to clear the country’s nearly $1.8 trillion student loan debt, which experts say has forced younger adults to delay home purchases or even marriage. In many cases, this debt has complicated the retirement plans of older Americans, who are going back to school or recruited as loan co-signers. The Trump and Biden administrations have postponed loan payments on federal student loans because of the pandemic, but borrowers have demanded a more permanent solution.

“We see steps in the right direction,” said Fred Amrin, CEO of PayFORED, a company that provides student loan solutions in Newtown Square. But he said Navient’s settlement “doesn’t even reach 1%” of his $1.8 trillion student loan debt.

In a statement, Shapiro said, “Navient has repeatedly and deliberately put profits before borrowers – it has engaged in deceptive and abusive practices, targeting students it knew would struggle to repay loans, and placing an unfair burden on people trying to improve lives through education.”

He added that Navient’s investigation revealed “Navient’s motive to mislead and tolerate borrowers, which has prevented them from repaying the principal of the loan and prompted many to accumulate more debt and never-ending interest payments.” These are the students who took out federal student loans.

In Pennsylvania, the deal’s big debt cancellation looks like this: 2,467 Pennsylvania would get $67 million for private debt cancellation — or an average of $27,158 per borrower, according to the attorney general’s office.

Additionally, 13,000 Pennsylvania student loan borrowers will receive $3.5 million in forbearance compensation payments — about $260 on average.

New Jersey’s acting attorney general, Brooke, said NJ student loan borrowers will receive more than $60 million for debt relief from a settlement with Navient that resolved a 2020 state lawsuit. The lawsuit alleged that Navient engaged in deceptive behavior and misrepresentations when providing a service to thousands of student loans from New Jersey consumers over the past decade — boosting the company’s profits at the expense of distressed borrowers.

The New Jersey portion consists of approximately $57.2 million for debt cancellation and $3.1 million in compensation payments to borrowers, plus $3 million for the state.

A separate lawsuit against Navient by the Consumer Financial Protection Bureau, a federal agency, is still ongoing, and the claims are similar to the general lawsuits of state attorneys general.

“We are confident that we will prevail in the trial against the CFPB. After years of investigation, discovery and litigation, the CFPB has failed to produce a single borrower to substantiate his allegations because they do not exist,” Navint said in her statement. More information on the CFPB suit is available at navient.com/legalfacts.

Along with Navient, FedLoan, part of the Pennsylvania Higher Education Assistance Agency (PHEAA) in Harrisburg, will abandon its federal student loan service business. It happened after U.S. Senator Elizabeth Warren (D.D., Massachusetts) criticized PHEAA CEO James Steele for misleading her committee at a hearing in April. In July, FedLoan said it would not renew the federal loan service contract when it expires in December.

Mike Pearce, executive director of the Student Borrower Protection Center, praised the deal:

“Student loan borrowers who were forced to take on the burden of dangerous and brutal private student loans offered by Sallie Mae owned by Navient will finally be debt free. Today’s action is a clear victory for the many millions of borrowers whose pain Navient and Sallie Mae unabashedly turned into profit.

“Borrowers may not be able to enjoy Navient CEO Jack Remondi’s $8 million salary, his three homes, or his use of the company’s private jet. But they can take some comfort if they know some measure of justice has been done,” he said.

Alexis Miller, 37, graduated in 2007 from Drexel University with a nursing degree and about $61,000 in school loans.

“I have funded my undergraduate degree entirely through loans, and many, many nurses are doing the same,” Miller said at a news conference with Shapiro and John Fry, president of Drexel University, on Thursday afternoon.

She said Navint has led her away from income-driven payment plans and instead into patience, as her payments were paused and her debts rose to more than $80,000. “I knew in my gut it wasn’t right. Then they started chasing me, calling my bosses at work. It was embarrassing.”

Under the settlement with Navient, her debts will be forgiven starting in June. To see if you qualify for a settlement deal, see the terms described at navientagsettlement.com.

Borrowers with Navient debt should not stop making payments until their debt is determined to qualify under the settlement, experts warn.

Any payments made between June 30, 2021, and the cancellation will be refunded, Anna Helhosky, student loan expert at NerdWallet, said. Federal student loan borrowers who are eligible to receive compensation should update their contact information at studentaid.gov to ensure they have more information this spring.

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