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Student-loan giant Navient agrees to $1.8 billion deal with 39 states, denies wrongdoing

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Pennsylvania Attorney General Josh Shapiro speaks at the Constitution Center in Philadelphia on Jan. 6, 2022.
Thomas Hengge/The Philadelphia Inquirer/TNS

PHILADELPHIA — Thirty-nine state attorneys general, including Minnesota's Keith Ellison, reached a $1.8 billion settlement with student-loan processor Navient over alleged abusive practices that steered borrowers into loans they couldn’t pay off and failed to offer counsel on more affordable repayment plans, officials said Thursday.

Under the terms of the settlement, released Thursday, Navient will cancel the remaining balance on nearly $1.7 billion in subprime private student loan balances owed by about 65,000 borrowers nationwide. Another $95 million will be paid in restitution to roughly 350,000 federal student borrowers whose loans were placed for two consecutive years in forbearance, leading to high interest charges.

More than 400 Minnesotans who got student loans through Navient will see their debt canceled, and 4,325 will receive restitution payments, the Minnesota Attorney General’s Office announced.

According to Pennsylvania Attorney General Josh Shapiro, Navient allegedly originated predatory subprime private loans to students attending for-profit schools and colleges with low graduation rates, even though it knew that many borrowers would be unable to repay the loans. Shapiro called the practice similar to the subprime mortgage crisis that led to the 2008 financial collapse.

Navient said in a statement that the allegations were baseless, it did not admit wrongdoing and it settled to save litigation costs.

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“The agreements include an express denial of the claims and any borrower harm by the company,” Navient said.

“These lawsuits began more than eight years ago, yet we are still years away from our day in court,” Navient officials said in the statement. “We made this decision to avoid the burden, expense, time and distraction it would take to resolve these claims through state-by-state litigation and investigations.”

Last year, Navient relinquished its student-loan processing contract with the U.S. Department of Education.

Under the deal, Navient will cancel loan balances for borrowers with certain qualifying private education loans who have been in default for many years. Virtually all of these loans were originated between 2002 and 2010 at Sallie Mae, prior to the Navient spin off, the company said.

The settlement is the latest action promising relief to student loan borrowers who collectively owe about $1.8 trillion. The Trump and Biden administrations have delayed loan payments on federal student loans because of the pandemic, but borrowers have clamored for a more permanent solution.

“Navient repeatedly and deliberately put profits ahead of its borrowers – it engaged in deceptive and abusive practices, targeted students who it knew would struggle to pay loans back, and placed an unfair burden on people trying to improve their lives through education,” Shapiro said. The “settlement corrects Navient’s past behavior, provides much needed relief to Pennsylvania borrowers, and puts in place safeguards to ensure this company never preys on student loan borrowers again.”

Shapiro added that his investigation into Navient also uncovered “Navient’s drive to mislead borrowers into forbearances, which stopped them from paying down the principal on their loan and led many to accumulate more debt and never-ending interest payments.” These are students who took out federal student loans.

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

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“We are confident that we will prevail at trial against the CFPB. After years of investigation, discovery and litigation, the CFPB has failed to produce a single borrower to substantiate its claims because they don’t exist,” Navient said in its statement.

More information on the CFPB suit is available at navient.com/legalfacts.

Navient in September requested government approval to end its loan servicing contract for student-loan accounts owned by the U.S. Department of Education.

Those 6 million borrowers’ accounts are to be transferred to Maximus, another competing government-loan servicing company.

Federal student loan borrowers are expected to resume payments in May 2022 after a hiatus because of the pandemic.

©2022 The Philadelphia Inquirer, LLC. Visit at inquirer.com. Distributed by Tribune Content Agency, LLC.

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