Historic $1.85 billion relief for federal and private borrowers
A broad coalition of state attorneys general (AGs) recently won the cancellation and restitution of student loan debt against Navient, the nation’s largest student loan servicer.
Pending Federal Court approval of the settlement, a record $1.7 billion in debt and an additional $95 million in restitution will resolve and alleviate related complaints dating back to 2009 regarding federal and private student loans.
“Our investigation uncovered two deceptive and unfair schemes Navient was using that broke the law and put their own profits ahead of the people they served,” Pennsylvania State Attorney General (AG) Josh Shapiro said on 13 January.
Other state AGs signing the settlement included localities with large black and other minority populations, including: Arizona, Arkansas, California, Colorado, Florida, Georgia, Illinois, Indiana, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio, South Carolina, Tennessee, Virginia, Washington, Wisconsin, and the District of Columbia.
The AGs alleged that struggling federal borrowers were never told by Navient of the benefits of affordable, income-driven loan repayment plans that had the potential to reduce payments to as low as $0 per month, offered interest subsidies and/or help achieve forgiveness of any remaining balance after 20 to 25 years of qualifying payments.
Under the Civil Service Loan Forgiveness Scheme, borrowers who worked in government and qualified civil service careers could withdraw their loans after 10 years of on-time payments.
Instead, Navient directed these borrowers into expensive long-term forbearance plans that compounded loan debts due to additional interest charges.
Additionally, Navient created risky private predatory loans to students attending for-profit schools and colleges with low graduation rates, even though it knew a very high percentage of those borrowers would be unable to repay the loans.
These higher-risk, higher-risk loans were used as “an incentive for schools to use Navient as a preferred lender” for highly profitable “prime” federal and private loans. These predatory loans were granted with no regard for the borrowers and their families, many of whom were unknowingly trapped in debts they could never repay.
When facing unemployment or other financial hardship, many borrowers rely on their student loan officer to help them enroll in alternative repayment plans or request a change in loan terms. Although borrowers choose their student loans, they generally have no choice as to who will handle that same loan. In many cases, borrowers have to depend on a loan officer they have not chosen and who is rarely the same for the duration of a loan.
Among the key provisions of the settlement, Navient is required to:
• Cancel remaining balances on nearly $1.7 billion in subprime private student loan balances issued between 2002 and 2010 that are owed by nearly 66,000 borrowers nationwide;
• Grant an additional $95 million in restitution to approximately 350,000 federal student borrowers who were placed in long-term forbearance agreements that temporarily suspended loan payments. Each borrower will each receive an estimated payment of $260; and
• From the effective date of the settlement and for the next five years, cooperate explicitly and fully with the terms of the settlement.
Reactions to the announcement of the settlement highlighted the debilitating financial challenges faced by those pursuing higher education at the hands of those tasked with managing loan repayment records.
“When borrowers have trouble repaying their student loans,” noted Illinois AG Kwame Raoul, “they should be able to turn to their service agent for accurate information and reliable help and advice. Navient failed to do this and instead pushed borrowers into more debt.
Similar to AG Raoul, the National Consumer Law Center and the Center for Responsible Lending released a joint statement on the historic settlement as well as the remaining student debt challenges:
“Navient’s history of steering borrowers into long-term, high-cost forbearances instead of placing them into affordable income-based repayment (IDR) plans has hurt millions of borrowers in the nationwide, many of whom were borrowers of color and low-income students,” the nonprofit advocates said. “This settlement requires Navient to change its practices going forward, but what it does not do is credit borrowers with the years toward student loan forgiveness through IDR that they defaulted on due to poor loan service.”
“The Ministry of Education can and should do just that for all borrowers: give them back the time they should have bought for the cancellation of IDR and restore the promise of IDR,” the advocates added. .
This same point of view is taken up by another State AG.
“Navient has been one of the worst performers in the student loan servicing market, and this settlement is a step toward accountability, providing direct relief to many of our most vulnerable student borrowers,” the Attorney General of California, Rob Bonta. “The larger fight, however, is far from over.
There’s a $1.7 trillion student debt crisis in this country — and we need decisive action from Congress and the Department of Education to solve it.
Charlene Crowell is a senior researcher at the Center for Responsible Lending. She can be reached at [email protected]