Navient is no longer allowed to service government student loans

Washington
CNN
—

A federal regulator announced Thursday that it was barring Navient from servicing federal student loans and ordering the company to pay $120 million.

The agreement resolves a 2017 lawsuit filed by the Consumer Financial Protection Bureau, which accused the company of misleading student loan borrowers and improperly processing their payments.

At the time, Navient – ​​which had previously been spun off from loan servicer Sallie Mae – was one of the largest companies contracted by the Department of Education to service federal student loans.

The troubled loan servicer abandoned its contract with the government and its 6 million federal student loan accounts in 2021 after facing a series of other legal and enforcement actions.

Navient reached a $1.85 billion settlement with several state attorneys general in 2022, accusing the company of unfair business practices. Previously, the Justice Department and the Federal Deposit Insurance Corporation ordered Navient and Sallie Mae to pay a total of nearly $100 million in 2014 for illegally defrauding nearly 78,000 military personnel.

As a result of the new settlement announced Thursday, $100 million will go to affected borrowers, who can expect a check from the CFPB. Eligible borrowers will not have to take any action. Navient will also pay a $20 million fine to the federal agency.

“By barring the notorious student loan giant from servicing federal student loans and ensuring the unwinding of these transactions, the CFPB will finally put an end to years of abuse,” CFPB Director Rohit Chopra said in a statement.

Navient said in a press release that it does not agree with the CFPB's allegations, but that “this settlement puts these decades-old problems behind us.”

At the heart of the CFPB's lawsuit was a long-standing criticism of how many student loan servicers grant deferments to their borrowers even though they are eligible for an income-driven repayment plan that lowers their monthly payments.

When the loan is deferred, no payments are required – but interest will still accrue, which can cost the borrower more money over time.

Some of the Biden administration's efforts to cancel student loan debt have targeted borrowers who were forced into deferment even though a better repayment option was available. So far, this has resulted in $51 billion in debt forgiveness for 1 million borrowers, according to the Department of Education.

A deferral cannot be granted for more than 12 months at a time or for more than 36 months in total. However, the Department of Education has found that loan servicers do not always adhere to this rule.