Navient, one of the largest private student loan providers in the US, has reached a $1.85bn settlement with dozens of states accusing the company of “deceptively trapping” thousands of borrowers with costly repayment plans.
The settlement hits one of the best-known student loan providers in the US, which authorities had accused of predatory behaviour as scrutiny mounts over a precariously accelerating student debt pile-up.
Under the agreement with 39 US states, $1.7bn in private student loan debt owed by nearly 66,000 customers will be cancelled, and Navient will pay $95m in restitution to students across the country.
“For too long, Navient contributed to the national student debt crisis by deceptively trapping thousands of students into more debt,” Letitia James, New York attorney-general, said in a statement. “Navient will no longer be able to line its pockets at the expense of students who are trying to earn a college degree.”
The states’ investigation found that as of 2009 Navient pushed students struggling to repay their loans into expensive, long-term forbearances rather than advising them on other repayment schemes, which added to customers’ debt piles, according to the New York attorney-general’s office.
Authorities said the company also “provided predatory, subprime, private loans” to students attending for-profit schools and lower-quality institutions, knowing many of those borrowers would be unable to repay their loans.
“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,” said Mark Heleen, Navient’s chief legal officer. The loan provider has helped borrowers pick “the right payment options to fit their needs”, he said. Navient has denied any wrongdoing.
The settlement comes as the Biden administration faces pressure to tackle the student debt crisis in the US. About 43m Americans owe $1.7tn in education debt, mostly to the federal government. Borrowers say the loans are impractical to repay and have soured their future financial prospects by cutting them off from small businesses financing and mortgages.
A payment pause put in place at the start of the Covid-19 pandemic, which has been extended multiple times, has stopped balances from growing until May, but borrowers and progressive activists are pushing for more permanent relief. Elizabeth Warren, the Democratic senator from Massachusetts, has led calls for US President Joe Biden to cancel $50,000 of debt per borrower through executive action. He has declined to do so.
Speciality financing companies such as Navient account for the lion’s share of the private student debt market. Large banks have retreated from the business over the past decade as they tightened underwriting standards and new laws made it easier for students to borrow directly from the government.
As of September, private loans account for roughly 8 per cent of the $1.72tn student loans outstanding in the US, according to research firm MeasureOne. The remaining 92 per cent are federal loans.
Under the agreement, Navient must implement “conduct reforms” such as outlining the benefits of repayment plans other than forbearances.
Navient has faced legal action from US authorities before. The US Consumer Financial Protection Bureau in 2017 sued Navient, which was previously part of Sallie Mae, the country’s student finance group, for “illegally cheat[ing] borrowers out of repayment rights through shortcuts and deception”. That case is ongoing.