By Katie Lobosco, CNN
Updated: Thu, 13 Jan 2022 19:50:48 GMT
More than 400,000 student loan borrowers will get some debt relief from Navient, according to a $1.85 billion settlement agreement announced Thursday.
The deal will settle litigation brought by several state attorneys general that claimed that Navient, one of the largest student loan servicing companies in the US, engaged in unfair practices and made predatory loans to students who were unlikely to be able to pay them back.
About 350,000 federal student loan borrowers whom Navient placed in long-term forbearance -- which allowed them to temporarily stop making payments -- will receive about $260 each, totaling $95 million in restitution.
Additionally, Navient must fully cancel the remaining balances of private loans borrowed by about 66,000 students, totaling $1.7 billion. Those loans were largely made between 2002 and 2010.
"Navient knew that people relied on their loans to make a better life for themselves and for their children and instead of helping them, they ran a multibillion dollar scam," said Pennsylvania Attorney General Josh Shapiro at a press conference Thursday. He co-led the litigation with attorneys general from Washington, Illinois, Massachusetts, and California.
The state attorneys general claimed that Navient steered federal student loan borrowers into forbearance rather than directing them to enroll in low-cost repayment plans. As a result, some of these borrowers fell deeper into debt as interest accrued.
The lawsuit also alleges that Navient made private loans to students attending for-profit schools and colleges with low graduation rates, even though it knew that a high percentage of those borrowers would be unable to repay the loans.
Navient denied violating any law in the settlement.
"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," Navient's chief legal officer Mark Heleen said in a statement.
Until recently, Navient had a contract with the US Department of Education to service federal student loans, but the company decided to end that contract late last year. Earlier this month, it transferred its federal student loan portfolio to a servicer called Aidvantage. Navient continues to originate private student loans.
The settlement covers borrowers who live in 38 states and Washington, DC. Those who qualify for relief under the settlement don't need to take any action and can expect to automatically receive notification from Navient later this year after the court approves the agreement. Federal loan borrowers can update or create an online account with the Department of Education to ensure the agency has their current address.