Over 66,000 student loan borrowers will see their debts wiped out under a $1.85 billion settlement between the student loan servicer Navient and 40 state attorneys general, officials said Thursday.
In agreeing to forgive debt and pay restitution, Navient is settling allegations of deceptive and unfair lending practices that go back two decades. According to lawsuits filed in multiple states, Navient and its predecessor Sallie Mae peddled subprime student loans to borrowers it knew could not pay them back and deliberately steered borrowers into expensive forbearance plans when cheaper, income-based repayment options were available.
“For many borrowers, removing this debt will be life changing,” Massachusetts Attorney General Maura Healey said during a joint announcement hosted with attorneys general of Pennsylvania, California, Illinois and Washington.
In addition to $1.7 billion in loan cancellations, the settlement also includes $95 million in restitution to 350,000 federal loan borrowers who were placed into certain types of forbearances, officials said.
Attorneys general in Illinois, Washington and
Navient is also still facing at least two other lawsuits. The
Two types of borrowers will benefit from the settlement outlined on Thursday: private loan borrowers who were placed into loans the company knew they could not afford and federal borrowers who were steered into long-term forbearance programs that quickly racked up interest.
“We will not tolerate corporations who break the law and take advantage of the people they’re supposed to serve,” Pennsylvania Attorney General Josh Shapiro said.
Consumer advocates cheered the announcement but also said the federal Department of Education can do more. In a proposal issued Wednesday, the nonprofit Student Borrower Protection Center called on the Biden administration to implement an income-driven repayment waiver, which among other things would forgive the debts of over 4.4 million borrowers who have been repaying their loans for 20 years or longer.
Though income-based repayment programs have been in effect since the mid-1990s, a recent analysis by the center showed that only 32 people who had been making payments for 20 years had ever successfully had their student debt canceled.
“You have a better chance of being struck by lightning than of being one of the people who’s had their debt canceled,” Mike Pierce, the Student Borrower Protection Center’s executive director, said in an interview.
Thursday’s settlement represents about 0.1% of all student loan debt held nationwide, but it represents a little more than 1% of outstanding private student loan balances, Pierce said.
“It’s a meaningful change in the market overnight,” he said.
Navient admitted no wrongdoing as a part of the settlement.
“It doesn’t matter what they admit or don’t admit,” Shapiro said during Thursday’s press conference. “Actions speak louder than words.”
In a press release issued by the company, Navient’s chief legal officer, Mark Heleen, said, “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.”
Navient must also abide by certain conduct reforms as part of the settlement. Chiefly, it must inform borrowers about income-based repayment plans, public service loan forgiveness and other related programs before placing a borrower in forbearance.
