If you’re familiar with Navient and student loans, you may have wondered how this case will turn out. The company has agreed to pay out $142.5 million in fines to attorneys general and cancel subprime private student loan balances. It will also implement reforms to better serve student loan borrowers, including income-driven repayment plans. If you’re not familiar with this lawsuit, read on to learn more about the details of the case.
Navient will cancel subprime private student loan balances
The largest student loan servicer in the country, Navient, has agreed to settle claims of predatory lending and deceptive practices by a group of state attorneys general. The settlement includes $1.7 billion in cancellations of subprime private student loan balances and nearly $9 million in restitution payments to borrowers. It is not clear when the Navient cancellations will take effect, but the news will likely hurt borrowers’ credit scores for years.
The Navient settlement will cancel the balances of 66,000 private student loan borrowers, which is about $1.7 billion. While the settlement won’t impact federal loans, borrowers must meet specific eligibility requirements to qualify. They must be delinquent, attend a list of for-profit institutions, and comply with all applicable statutes of limitations and credit reporting requirements. If they meet the criteria, Navient will issue a postcard notifying them of the cancellation.
It will pay $142.5 million to attorneys general
Attorneys general has awarded nearly $1.7 billion in damages to Navient in a new lawsuit. The company had issued subprime private loans to low-income students at for-profit colleges, knowing that many would not be able to repay them. The company offered these loans as part of a program called ‘preferred lender’ with the schools, which increased its highly-profitable federal loans. However, the company did not take the borrowers’ financial conditions into account when deciding whether to accept these loans.
The company denies all of the allegations, claiming that the charges are unsubstantiated. But the Pennsylvania attorney general argues that actions speak louder than words. According to the complaint, Navient encouraged students to opt for forbearance over low-cost repayment plans, which resulted in increased interest payments. While these payments have been substantial, Navient still owes borrowers a great deal of money.
It will implement reforms to better serve student loan borrowers
The attorney’s general has ordered Navient to pay $142.5 million in restitution to the plaintiffs. The company also has to make changes to better serve borrowers, including more transparency about IDR plans and a more personalized approach to repayment. The company must also train loan specialists and stop providing compensation that incentivizes borrowers to hang up the phone. In the wake of the lawsuit, Navient is preparing a new update to implement reforms for its customer service.
The company will also provide $95 million to the States as restitution to borrowers who took out federal loans. In addition, the company will cancel certain private student loans and implement reforms in loan servicing. Those with private student loans should expect to receive refunds starting in July 2022. In addition to this, the company will pay $260 per eligible borrower, so borrowers should be aware of their options.
It will provide borrowers with income-driven repayment plans
The latest update to the Navient lawsuit will offer borrowers more flexibility in their repayment plans. The company repeatedly recommended forbearance and failed to offer borrowers other repayment plans, such as income-driven repayment plans. This led to allegations that Navient had deceptively steered borrowers toward forbearance and income-driven repayment plans, which were less expensive and offered borrowers opportunities to eliminate their loans.
The lawsuit argues that Navient failed to properly inform borrowers of their eligibility deadlines and the consequences of non-renewing their plans. Because the income-driven repayment plan requires borrowers to recertify their eligibility every year, the company failed to communicate the consequences of not renewing the plan. This resulted in higher monthly payments and other financial harm for many borrowers.
The settlement also stipulates that Navient must provide borrowers with restitution payments to compensate them for their losses. Navient will have to pay restitution to consumers totaling $95 million. Each consumer will receive approximately $260, and the state of Illinois will be paid $7.2 million. The settlement will also result in the cancellation of more than $133 million in subprime private student loans.