Settlement Erases Debt for 66,000 Student Borrowers

Multi-state lawsuit alleged loan servicer Navient engaged in abusive practices

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About 66,000 borrowers who defaulted on their student loans will have their remaining debts wiped out in a legal settlement between loan servicer Navient and dozens of states that sued the company alleging abusive and deceptive practices. 

The borrowers, who took out private student loans mainly between 2002 and 2010, will have nearly $1.7 billion in debt canceled, Navient and several state attorneys general announced Thursday. Navient, which denied any wrongdoing, will also pay $95 million in restitution—roughly $260 to each of about 350,000 borrowers with federal loans. 

The settlement with 38 states plus Washington, D.C. resolves claims going back to 2009. Navient and its predecessor companies, including Sallie Mae, were accused of steering struggling borrowers into forbearance plans instead of more affordable income-driven 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,” said Pennsylvania Attorney General Josh Shapiro, who co-led the litigation, in a statement.

For its part, Navient said it didn’t violate any law or cause any borrowers harm.

“The company’s decision to resolve these matters, which were based on unfounded claims, allows us to avoid the additional burden, expense, time and distraction to prevail in court,” Mark Heleen, Navient’s chief legal officer, said in a statement. 

Student loan cancellation and relief have been hot topics during the pandemic, primarily for the 43 million borrowers with federal student loans. Not only did the government pause payment obligations on federal loans (they are scheduled to resume in May), but President Joe Biden pledged to help forgive at least $10,000 in debt for each borrower. As debate over how and whether that should be done continues, his administration has made other targeted moves, forgiving 30,000 public servants, nearly 92,000 borrowers who were allegedly misled by their colleges, and more than 320,000 borrowers with disabilities

Navient said last year that it planned to exit the federal student loan business and transfer those borrowers to a new servicer, Maximus.

Correction - Jan. 13, 2022: This article has been corrected after mistakenly counting Washington, D.C. as a state. The settlement is with 38 states plus Washington, D.C. 

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