Navient, one of the largest private student loan providers in the US, has reached a $ 1.85 billion settlement with dozens of states accusing the company of “fraudulently” capturing thousands of borrowers with expensive repayment plans.
The settlement hits one of the most well-known providers of student loans in the US, which has accused authorities of predatory behavior as the investigation escalates into an uncertain accelerated accumulation of student debt.
Under the agreement with 39 U.S. states, $ 1.7 billion in private student loan debt owed by nearly 66,000 clients will be canceled, and Navient will pay $ 95m in restitution to students across the country.
“For too long, Navient has contributed to the national student debt crisis by fraudulently trapping thousands of students in more debt,” Letitia James, New York’s attorney general, said in a statement. “Navient will no longer be able to fill its pockets at the expense of students trying to obtain a university degree.”
The state’s investigation found that from 2009, Navient has been driving students struggling to repay their loans to costly, long-term delays rather than advising them on other repayment schemes, which have contributed to customers’ debt stacks, according to the New York Attorney General’s Office.
Authorities said the company also provided “robbery, subprime, private loans” to students attending for-profit schools and lower-quality institutions, knowing that many of those lenders would not be able to repay their loans.
“The company’s decision to resolve these issues, which was based on unfounded claims, enables us to avoid the additional burden, expense, time and distraction of triumphing in court,” said Mark Heleen, Navient’s Chief Justice. . The lender helped lenders “choose the right payment options to meet their needs,” he said. Navient denied any wrongdoing.
The settlement comes as the Biden administration comes under pressure to tackle the student debt crisis in the US. About 43 million Americans owe $ 1.7tn on education debt, mostly to the federal government. Lenders say the loans are impractical to repay and have sour their future financial prospects by cutting them off from small business financing and mortgages.
A multiple-payment delay in the start of the Covid-19 pandemic has prevented balances from growing until May, but borrowers and progressive activists are calling for more permanent relief. Elizabeth Warren, the Democratic senator from Massachusetts, led calls on U.S. President Joe Biden to cancel $ 50,000 worth of debt per borrower through executive action. He refused to do so.
Specialty finance companies such as Navient are responsible for most of the private student debt market. Large banks have withdrawn from the business over the past decade as they have tightened underwriting standards and new laws have made it easier for students to borrow directly from the government.
As of September, private lending accounts for about 8 percent of the $ 1.72tn outstanding student loans in the U.S., according to research firm MeasureOne. The remaining 92 percent are federal loans.
Under the agreement, Navient must implement “behavioral reforms”, such as outlining the benefits of repayment plans other than tolerances.
Navient has previously faced legal action from US authorities. The US Bureau of Financial Protection for Consumers in 2017 sued Navient, formerly part of Sallie Mae, the country’s student finance group, for “illegal cheating[ing] borrowers from repayment rights through shortcuts and deception ”. That case is ongoing.