Student loan servicer Navient reaches $120 million settlement

Navient, one of the nation’s largest student loan companies, will pay $120 million to resolve allegations that it misallocated payments, steered people into costly repayment plans, supplied the wrong information and ignored borrowers’ pleas for help, the Consumer Financial Protection Bureau said Thursday.

Most of the settlement, $100 million, will be used to make payments to affected customers as determined by the CFPB. The bureau will mail checks to eligible consumers, who do not need to take any action. The CFPB said the recipients could number in the thousands, but information wasn’t available yet about how much each would receive. The remaining $20 million will go into the bureau’s civil penalty fund.

“It was a hard-fought battle to really make sure that this wasn’t just about a fine, but that this would actually end Navient’s years of abuses,” CFPB Director Rohit Chopra said in an interview.

The settlement stems from a 2017 lawsuit brought by the bureau that casts Navient as a company that was far more concerned with its financial interests than the needs of vulnerable student loan borrowers. Among the most serious charges is that Navient encouraged borrowers to postpone their payments through forbearance, rather than enroll them in an income-driven repayment plan to save on administrative expenses.

Navient, which split from Sallie Mae in 2014, has long disputed the claims as a gross mischaracterization of its business practices.

The bureau said borrowers who couldn’t afford their payments would have benefited from an income-driven plan instead of forbearance, which is intended as a short-term fix and leaves interest continuing to accrue. Navient allegedly enrolled some 1.5 million people in two or more consecutive forbearances, including 520,000 in at least four back-to-back forbearances, from January 2010 to March 2015. Those borrowers with multiple forbearances ended up owing an additional $4 billion in interest, according to the complaint.

In court filings, the company said the borrowers the CFPB identified received information about income-based plans through frequent phone calls and emails, but some were ineligible or chose forbearance because they could not afford their payments under IDR. Over the years, the company tried to get the case dismissed, arguing the bureau lacked the evidence to support its claims. Navient chief executive David Yowan, who took over in May 2023, signaled in an earnings call last year that the company was open to a settlement despite confidence in its case.

“This agreement puts these decade-old issues behind us,” said Paul Hartwick, a spokesman for Navient. “While we do not agree with the CFPB’s allegations, this resolution … is an important positive milestone in our transformation of the company.”

For decades, Navient was one of the most widely recognized servicing companies in the federal student loan apparatus. Elected officials, consumer groups and borrowers frequently accused the company of mishandling student loan accounts, claims that led to a number of lawsuits from state and federal authorities. Throughout that time, Navient remained vigilant in defending itself and became a vocal critic of the federal repayment system before exiting federal student loan servicing in 2021.

As part of the CFPB settlement, Navient has agreed to never return to federal student loan servicing and to no longer purchase debt originated through the defunct Federal Family Education Loan (FFEL) program. In instances where the company still services loans from that old bank-based federal program, the consent order instructs Navient to ensure those borrowers are made aware of their right to enroll in affordable repayment plans.

Chopra said the ban is critical because “the public gets tired of large, powerful corporations cheating consumers, repeatedly breaking the law, and then when they get caught, they just pay a fine.”

Navient said it has not bought any loans from the defunct federal program since 2017 and began outsourcing the servicing of its FFEL program portfolio in July.

“The bureau knows full well its specific accusations are without merit, which is probably why they agreed to settle and move on for what may be just little more than the wasted costs of litigation for both sides since 2017,” said Scott Buchanan, executive director of the Student Loan Servicing Alliance, a trade group for loan servicers. “They failed to produce a single harmed borrower in depositions over seven years of litigation. It’s a shame the goal isn’t to work collaboratively on ways to improve actual borrower outcomes – but hopefully that can now change.”

Chopra said that he stands behind the charges in the Navient case and that the company has long had a “culture of lies and deceit” when it comes to how it communicates with borrowers, law enforcement and the public.

“They can say what they want,” Chopra said. “But with this court order, it won’t matter because they will be banned from ever directly servicing federal student loans.”

In January 2022, Navient entered into a $1.85 billion settlement with 39 states over similar claims that it steered borrowers into costly repayment plans and predatory loans. The agreement put to rest multiple state probes into the company’s loan servicing and lending practices dating back to when it was known as Sallie Mae. At the time, Navient said it would cost less to resolve the cases, some of which were more than eight years old, than to fight each individual lawsuit.

The CFPB credits its investigation with kicking off efforts by state and federal agencies to examine forbearance steering and other breakdowns in the income-driven repayment program. Those efforts have resulted in billions of dollars in student debt relief for borrowers who were harmed by forbearance or who had payments miscounted toward forgiveness, said Undersecretary of Education James Kvaal.

“I applaud the CFPB for obtaining concrete relief for borrowers and deterring similar failures in the future,” Kvaal said in a statement. “Today’s action builds on the Biden-Harris Administration’s work to hold loan servicers accountable and protect borrowers.”