Navient, one of the largest student loan servicers, will cancel $1.7 billion in private student loans after a deal it reached with 39 states.
Per the New York Times, Navient’s $1.85 billion deal means the company has to pay $95 million in restitution and cancel $1.7 billion of private student loan debts for around 66,000 people. Navient aimed to saddle certain types of students with private loans, which were extremely profitable for the company. Many of these students went to for-profit schools that didn’t have high graduation and job-placement rates. Navient purposely gave private loans to borrowers so that it could get more federally guaranteed loans.
“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,” Josh Shapiro, the attorney general of Pennsylvania, said.
While Navient said the case is “based on unfounded claims” and it didn’t do anything illegal, the company’s chief legal officer, Mark Heleen, said it chose to settle in order to “avoid the additional burden, expense, time, and distraction.”
Federal and state prosecutors first sued the company five years ago, with this new deal resolving one of a set of legal actions. The Consumer Financial Protection Bureau sued Navient, alleging that the company’s actions led to borrowers’ debts being inflated by billions. Since federal funding for school tuition payments is capped at 90 percent, private loans were a bridge that Navient and schools depended on. The deal is yet to be approved, but if greenlit, will allot $260 to be given to each of the 350,000 borrowers who were involved in long-term forbearances.
By the end of 2019, Americans owed more in private student loans than they did for past-due medical debt or payday loans.