Navient, a student loan service provider in the United States, reached a settlement with 39 states to pay $ 1.85 billion to resolve predator claims.
Navient Corp. reached an agreement with 39 states to pay $ 1.85 billion and cancel nearly 70,000 student loans to settle claims that the company used predatory lending practices.
Most of the settlement value comes from the cancellation of $ 1.7 billion in loans taken out since 2002, according to statements by the company and state attorneys general. Government officials said Navient promised to help struggling lenders find affordable repayment plans, but instead led them to expensive long-term repayments.
“The bottom line is this: Navient knew people were relying on their loans to make a better life for themselves and their children,” Pennsylvania Attorney General Josh Shapiro told a news conference Thursday. “Instead of helping them, they ran a multimillion-dollar scam.”
The investigation by Navient States and the U.S. Bureau of Financial Protection for Consumers has been previously reported, as well as violations at settlement talks. A Bloomberg Intelligence analysis in December estimated the company’s financial exposure at more than $ 500 million. Shares washed up on the news, but changed little during the afternoon trading on Thursday.
Navient, based in Wilmington, Delaware, manages about a quarter of the country’s student loans. It was created in 2014 in a spin-off of US-backed loan generator Sallie Mae.
Loan service providers, such as mortgage service providers, play an important role in the student debt system which consists of loans made by the government and those made by private lenders. As a service provider, Navient lenders send their monthly bills, collect payments and advise them on their repayment options.
The settlement says the company has led struggling student loan lenders to “expensive long-term tolerances instead of advising them on the benefits of more affordable income-driven repayment plans”.
When borrowers are tolerant, their payments are repelled as interest accrues. Payments for income-driven repayment plans for government loans are based on what a borrower earns and can in some cases be zero dollars. Their balances can be forgiven after a certain number of years – 20 or 25 years – or 10 years in the case of the public service loan forgiveness program.
“As it stands at present, nearly 45 million Americans owe more than $ 1.8 trillion in debt,” Shapiro said. “By the way, I’m one of them. I still pay off my student debt. ”
The Attorney General said that borrowers who are eligible for repayments will automatically receive them by mail.
(Updates with background on Navient)