For years, the student loan servicing company Navient allegedly encouraged student loan borrowers to enter costly long-term forbearance programs that pushed them further into debt, as well as take on private loans they couldn’t pay back, according to lawsuits filed by several states, and joined by 39 attorneys general.
Those claims were resolved through a settlement announced yesterday (Jan. 13) affecting some 400,000 borrowers. Navient says it will cancel $1.7 billion in private student loan debt for 66,000 borrowers, as well as pay an additional $95 million in restitution to 350,000 people with federal loans. The former deal mostly focuses on students who took out loans to attend for-profit colleges between 2002 and 2014.
“This day is very important for students with student debt,” said Mike Pierce, executive director at the Student Borrower Protection Center. “Borrowers that are still struggling more than a decade later with loans, with the worst terms, after going to the worst schools, are finally debt free.”
Navient accused of predatory practices
The lawsuits accused Navient of engaging in two types of predatory behavior:
- Steering student loan borrowers into forbearance. According to the attorneys general, the loan servicer encouraged borrowers who were having trouble making their payments to enter forbearance, rather than consider an income-driven repayment plan, which can bring borrowers’ monthly payments down to $0, or the Public Service Loan Forgiveness Program. Bearance can lead to higher long-term costs as loans accrue interest and borrowers miss payments, putting them in more debt. Pierce states that forbearance is not a way to make progress in getting out of debt. Instead, it will lead to interest accrual and further damage to your credit score. The states’ investigations and a 2019 report by the education department’s office of inspector general found workers at Navient’s call center were pushed to move through clients quickly, prioritizing forbearance rather than recommending other repayment options, which tend to require more time and paperwork.
- Encouraging students to take out loans they couldn’t repay. The lawsuits also claimed that Navient offered subprime student loans to borrowers with poor credit scores, even though it was likely they wouldn’t be able to repay them. These loans were mainly for students who attended colleges and schools with low graduation rates, which were partnered with Navient. Under federal law, schools’ tuition payments can only be 90% federally funded, making institutions dependent on other types of private loans similar to what Navient provided. Pierce states that private loans were born out of for-profit colleges’ inability to follow the rule.
Navient denies these charges, and said in a statement the settlement simply helps the company avoid “additional burden, expense, time and d