Navint, once one of the nation’s largest student loan service companies, reached a $1.85 billion deal with 39 states to settle claims that it made predatory loans that left borrowers with crushing debts they were unlikely to repay.
The deal, announced Thursday, requires Navient to cancel $1.7 billion in overdue private student loan debt to about 66,000 borrowers and pay $95 million in compensation. Prosecutors said the private loans were critical to Navient’s ability to provide a large volume of profitable federal loans.
“Repeatedly, Navient advances profits before borrowers — it has engaged in deceptive and abusive practices, it has targeted students who it knew would struggle to repay loans and it has imposed an unfair burden on people trying to improve their lives through education,” said Josh Shapiro, the Pennsylvania Attorney General, It is one of several states that have sued Navent.
Most of those who received the loans that would be forgiven under the settlement attended for-profit schools — such as the defunct ITT Institute of Technology — which often have low graduation rates and poor employment records. Private loans were – in the words of Navient herself, according to legal filings – a “baited hook” for more federally backed loans.
In some schools, Navint has predicted that more than 90 percent of loans will default. But what I lost in private loans far outweighed what I gained in the federal loans–guaranteed by the government–that students in those schools took.
Under Department of Education rules, no more than 90 percent of a school’s tuition payments can come from federal funding. The private loans, according to court filings, were intended to fill that gap and attract students who would then take out the lucrative federal loans that schools — and Navient — have relied on.
Navint, who has not admitted any wrongdoing in the settlement, said in a statement that she did not act illegally. “The company’s decision to resolve these matters, which was based on unsubstantiated allegations, allows us to avoid the additional burden, expense, time and distraction in court,” said Mark Helen, Navient’s chief legal officer.
The deal, which covers only borrowers from participating states and Washington, D.C., ends much of a slate of associated legal actions that began five years ago, when federal and state prosecutors sued the company, which was at the heart of student debt. collection system.
The Consumer Financial Protection Bureau has filed a lawsuit in federal court over what it described as Navint’s blunders and tactics that inflate borrowers’ bills by billions of dollars. Several state prosecutors have also filed lawsuits alleging that Sally May — the former company of Navient, from which he defected in 2014 — made high-risk private loans to borrowers who knew they had poor credit and were likely to default.
Those claims are the centerpiece of the settlement announced Thursday, but they also replaced states’ fees that Navient had charged for inflating borrowers’ bills by directing federal loan borrowers to long-term cost bearing rather than affordable income-based payment plans. The deal calls for about $260 per person to be distributed to 350,000 borrowers who have been put into certain patience programs. The Consumer Bureau’s lawsuit, which is also focused on those allegations, is ongoing.
Under the agreement, which has been submitted to the US District Court for the Central District of Pennsylvania for approval, Navient will also pay participating states $145 million.
If the settlement is approved, it will notify Navient to borrowers whose debts will be forgiven. Details of the deal have been published by the participating countries on a new website, NavientAGsettlement.com.
The loans to be cancelled, according to the proposed settlement, are overdue loans made in 2002 and thereafter to borrowers at certain for-profit schools or through Navient initiatives, including Opportunity and Go Back programs. Eligible schools include major for-profit chains such as ITT and Corinthian Colleges – both of which have collapsed – as well as Bridgepoint Education, DeVry University and Education Management Corporation.
But some of those who attended those schools would remain excluded: Navient agreed to cancel the remaining balance on those loans only to people in the locations that participated in the deal. 11 states, including Texas, did not participate.
Students who live in participating locations and who have attended public universities but who have received “non-traditional” loans — defined in the settlement as those made to borrowers whose credit score was less than 640 at the time the loan was made — would also be eligible to write off their overdue loans out.
Notably, students who were permanent on their loans as of June 30, 2021 – which means they are still paying their bills – will not have their loans cancelled. Representatives for Mr. Shapiro, the attorney general of Pennsylvania, did not immediately respond to a question about why these loans were excluded from the settlement.
While the canceled loans would be a great relief to the borrowers who took them, most of the debts that Navint agrees to cancel are loans that are long overdue and not actually likely to be repaid. Navient said Thursday in a regulatory report that the company estimated the $1.7 billion it agreed to forgive at just $50 million — the total it expected it could recoup at any time.
The Federal Consumer Bureau declined to comment on Thursday. Navint appeared willing to dissolve the bureau’s investigation in the final months of the Obama administration, but talks broke down after President Donald J. Trump’s victory in 2016. The agency, long the target of Republican criticism, filed a lawsuit against Navint two days before the Obama administration. Trump’s inauguration and lawsuits have prolonged his administration.
Navient decided last year to exit the federal student loan business. It terminated its contract with the Department of Education, which allowed the company to transfer 5.6 million borrowed accounts to a new seller, Maximus, who handles Aidvantage.
But the company held a private student loan portfolio worth billions of dollars, and later resumed this type of business. Navient has issued $17 billion in new private loans since her split from Sallie Mae.
“This is a huge benefit for people who have student debt,” said Mike Pierce, executive director of the Center for Student Borrower Protection. “We’ve spent so much time thinking and talking about how to reform the federal student loan system, often overlooking the number of economically vulnerable people with private student loans that are set to fail.”