Ohio, Pennsylvania reach $1.85 billion settlement with student loan servicer

Ohio Attorney General, Dave Yost, along with Pennsylvania Attorney General, Josh Shapiro and 37 other attorneys general have announced on Thursday that student loan servicer Navient has agreed to a $1.85 billion settlement over allegations that it engaged in predatory practices.

The attorneys general claimed that Navient practiced unfair and deceptive servicing by promising to help borrowers find an affordable repayment option, but instead steering strapped borrowers into costly, long-term repayment plans.

"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.

Yost added that this settlement will put money back in the pockets of borrowers struggling to pay for college. 

"It's also an important reminder for corporations that there are consequences for prioritizing profits over the public's best interest," Yost said.

As part of the agreement, Ohio will receive $5.3 million in restitution payments to be shared among more than 19,800 federal loan borrowers impacted by Navient's practices between 2009 and 2017.

Additionally, more than 3,500 Ohio borrowers will receive a combined $81.8 million in cancellation of private loan debt. 

In Pennsylvania, approximately 13,000 borrowers will receive $3.5 million in restitution payments, and another 2,467 Pennsylvanians will receive $67 million in debt cancellation.

According to the attorneys general, the interest that had accrued on students' loan balances stemmed from Navient's forbearance-steering practices, pushing borrowers further into debt.

Had the company instead provided borrowers with the help it promised, income-driven repayment plans could have potentially reduced payments to as low as $0 a month, provided interest subsidies and/or led to forgiveness of any remaining loan balance after 20 to 25 years of qualifying payments.

Navient also allegedly originated predatory subprime loans for students attending for-profit schools and colleges with low graduation rates knowing that a very high percentage of these borrowers would not be able to repay the loans.

It allegedly made these risky subprime loans as "an inducement to get schools to use Navient as a preferred lender" for highly profitable federal and "prime" private loans without regard for borrowers and their families, many of whom were unknowingly ensnared in debt they could never repay.

The settlement requires Navient to cancel the remaining balance of more than 1.7 billion in subprime private student loan balances owed by 66,000 borrowers nationwide since 2002.

Additionally, Navient will pay $142.5 million to the attorneys general.

A total of $95 million in restitution payments of roughly $260 each will be distributed to 350,000 federal loan borrowers who were placed on certain types of long-term forbearances.

The settlement also includes conduct reforms requiring Navient to explain the benefits of income-driven repayment plans and offer estimated income-driven payment amounts before placing borrowers into optional forbearances. 

Navient must also train specialists to advise distressed borrowers about alternate repayment options and counsel public service workers about Public Service Loan Forgiveness (PSLF) and related programs.

In addition, Navient must notify borrowers about the U.S. Department of Education's recently announced PSLF limited waiver opportunity, which temporarily offers millions of qualifying service workers the chance to have previously non-qualifying repayment periods counted toward loan forgiveness provided they consolidate into the Direct Loan Program and file employment certifications by October 31, 2022.

Borrowers receiving private loan debt cancellation will receive a notification from Naviant by July 2022, along with refunds of any payments made after June 30, 2021, on the canceled private loans.

Federal loan borrowers who are eligible for the restitution payment of $260 will receive a postcard from the settlement administrator later in the spring.

Borrowers who qualify for relief do not need to take any action aside from updating or creating their studentaid.gov account to ensure the U.S. Department of Education has their current address.