Navient Headquarters

On Thursday, it was announced that one of the major student loan companies in the United States, Navient (formerly Sally Mae), had reached a settlement to resolve a long-standing lawsuit in which thirty-nine state attorneys general had brought.

According to the lawsuit, Navient engaged in unfair as well as deceptive lending practices by steering those with loans into forbearances rather than informing them of relief programs. Such programs, including the PSLF (Public Service Loan Forgiveness) or income-driven payment plans, were often never discussed by the company’s customer service call center representatives.

Some have said that call center employees were encouraged to get through phone calls as quickly as possible and to steer those with loans away from any type of relief programs.

A forbearance on a student loan can be harmful to the borrower because interest continues to accrue on loans even when payments aren’t being made, such as when a company will pause payments due to financial hardship. The interest is typically added back to the loan once the payment pause is over, and this can lead to runaway balances that seem to never be paid off – at least to the borrower.

A forbearance does not count toward the loan forgiveness terms, either. With the Income Based Repayment plan or the PSLF program, the forbearance could actually prevent the borrower from taking advantage of one of the relief programs.

Not only were thirty-nine states involved in the lawsuit, but the Consumer Financial Protection Bureau was also involved. They brought a separate lawsuit in 2017 against Navient for the same reasons as the states’ attorneys general did – forbearance steering rather than informing customers about relief programs.

Navient allegedly originated subprime private student loans for students attending for-profit schools as well. The lawsuit alleges that Navient knew that borrowers would have a difficult time repaying the loans due to the schools’ low graduation rates as well as the potential difficulty in getting a job after graduation.

As a result of the settlement, $1.7 billion in student loans will be completely canceled – as long as the student attended certain institutions of higher learning, such as the ITT Technical Institute.

Navient will also make $95 million in restitution payments to 350,000 individuals put in forbearance. This equals about $260 per borrower. Navient will also be required to better communicate to borrowers what their relief options are other than simply forbearance.

Navient is not required to admit to any wrongdoing; Navient has strongly denied that it harmed any student loan borrowers or engaged in any misconduct. However, Pennsylvania Attorney General Shapiro said that Navient targeted students the company knew would have a hard time paying back these loans. The Attorneys General involved said that now there are safeguards in place so that hopefully this never happens again.