Student Loan Servicer Must Cancel Debt of 66K Borrowers

Navient, one of the nation's large student loan servicers, has settled allegations of predatory lending practices for $1.85 billion, Pennsylvania's attorney general said Thursday. The settlement requires the company to cancel the debt of 66,000 borrowers, a total of $1.7 billion, and to pay $95 million in restitution to 350,000 borrowers, state Attorney General Josh Shapiro, per the AP and the Wall Street Journal. “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 involves 39 state attorneys general and resolves claims that Navient led student borrowers into long-term debt instead of giving them advice on less costly repayment plans. Navient said it did not act illegally, and it did not admit any fault in the settlement, per the New York Times. “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,” says Mark Heleen, Navient’s chief legal officer.

Shapiro said the subprime loans were made “to borrowers they knew could not pay the money back,” a situation similar to the 2008 mortgage crisis. Additionally, he said, Navient misled "borrowers into forbearances ... and led many to accumulate more debt and never-ending interest payments.” Forbearance refers to when a lender allows a borrower to pause or reduce payments for a limited time while they build back their finances. However, interest on the loan continues to accrue and could ultimately cause the amount to be repaid over the life of the loan to be higher. (More student loans stories.)