US bans Navient from servicing federal student loans
Signage is seen on the offices of Navient in Wilmington
Washington (CNN) — A federal regulator said Thursday that it is banning Navient from servicing federal student loans and ordering the company to pay $120 million.
The agreement settles a lawsuit brought by the Consumer Financial Protection Bureau in 2017, which claimed the company misled student loan borrowers and processed their payments incorrectly.
At the time, Navient – which was previously spun off from servicer Sallie Mae – was one of the biggest companies contracted by the Department of Education to service federal student loans.
The embattled loan servicer gave up its contract with the government and its 6 million federal student loan accounts in 2021, after facing a number of other legal and enforcement actions.
Navient agreed in 2022 to a $1.85 billion settlement with several state attorneys general that claimed the company engaged in unfair practices. Previously, in 2014, the Department of Justice and the Federal Deposit Insurance Corporation ordered Navient and Sallie Mae to pay a total of almost $100 million for illegally overcharging nearly 78,000 military service members.
As a result of the new settlement announced Thursday, $100 million will go to impacted borrowers, who can expect to receive a check from the CFPB. Eligible borrowers are not required to take any action. Navient will also pay a $20 million fine to the federal agency.
“By banning the notorious student loan giant from federal student loan servicing and ensuring the winddown of these operations, the CFPB will finally put an end to the 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 agreement puts these decade-old issues behind us.”
Biden has delivered debt forgiveness to some Navient borrowers
The CFPB’s lawsuit focused on a longtime criticism of how many student loan servicers put borrowers in a forbearance when they qualify for an income-driven repayment plan that lowers their monthly payments.
No payments are required when a loan is in forbearance – but interest continues to accrue, which can cost borrowers more money over time.
Some of the Biden administration’s efforts to cancel student loan debt have been directed toward borrowers who were steered into forbearance when a better repayment option is available. To date, this has resulted in $51 billion of debt relief for 1 million borrowers, according to the Department of Education.
Forbearance cannot be granted for more than 12 months at a time or for more than 36 months cumulatively, but the Department of Education has found that loan servicers don’t always adhere to this rule.
The-CNN-Wire
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