Attorney General Shikada Announces $1.85 Billion Settlement with Student Loan Servicer Navient

Attorney General Shikada Announces $1.85 Billion Settlement with Student Loan
Servicer Navient
HONOLULU – Hawai‘i Attorney General Holly T. Shikada announced that Navient,
known as one of the nation’s largest student loan servicers, will provide relief totaling
$1.85 billion to resolve allegations of widespread unfair and deceptive student loan
servicing practices and abuses in originating predatory student loans.
This settlement, joined by a coalition of 39 attorneys general, resolves claims that since
2009, Navient steered struggling student loan borrowers into costly long-term
forbearances instead of counseling them about the benefits of more affordable incomedriven repayment plans despite representing that it would help borrowers find the best
repayment options for them.
“Student loan borrowers should have the option to receive counseling about incomedriven repayment,” said Attorney General Shikada. “This settlement ensures counseling
will occur before student loan borrowers are forced to accept costly long-term
forbearances, which can lead to dire financial and personal consequences.”
Attorney General Shikada filed the settlement as a proposed Consent Judgment and
Complaint in the Circuit Court of the First Circuit. The settlement will require court
approval.
According to the attorneys general, the interest that accrued because of Navient’s
forbearance steering practices was added to the borrowers’ loan balances, pushing
borrowers further in debt. Had the company instead provided borrowers with the help it
promised, income-driven repayment plans could have potentially reduced payments to
as low as $0 per month, provided interest subsidies, and/or helped attain forgiveness of
any remaining balance after 20-25 years of qualifying payments (or 10 years for
borrowers qualified under the Public Service Loan Forgiveness Program).
Navient also allegedly originated predatory subprime private loans to students attending
for-profit schools and colleges with low graduation rates, even though it knew that a
very high percentage of such borrowers would be unable to repay the loans. Navient
allegedly made these risky subprime loans as “an inducement to get schools to use
Navient as a preferred lender” for highly-profitable federal and “prime” private loans,
without regard for borrowers and their families, many of whom were unknowingly
ensnared in debts they could never repay.
Under the terms of the settlement, Navient will cancel the remaining balance on $1.7
billion in subprime private student loan balances owed by more than 66,000 borrowers
nationwide. In addition, Navient will pay $142.5 million to the attorneys general. A total
of $95 million in restitution payments of about $260 each will be distributed to
approximately 350,000 federal loan borrowers who were placed in certain types of longterm forbearances. Borrowers who will receive restitution or debt cancellation span all
generations: Navient’s harmful conduct impacted everyone from students who enrolled
in colleges and universities immediately after high school to mid-career students who
dropped out after enrolling in a for-profit school in the early to mid-2000s.
As part of the settlement, Hawai‘i will receive a total of $367,867 in restitution payments
for 1,380 federal loan borrowers. Additionally, 196 Hawai‘i borrowers will receive a total
of more than $4.3 million in private loan debt cancellation.
The settlement includes conduct reforms that require Navient to explain the benefits of
income-driven repayment plans and to offer to estimate income-driven payment
amounts before placing borrowers into optional forbearances. Additionally, Navient must
train specialists who will advise distressed borrowers concerning alternative repayment
options and counsel public service workers concerning Public Service Loan
Forgiveness (PSLF) and related programs. The conduct reforms imposed by the
settlement include prohibitions on compensating customer service agents in a manner
that incentivizes them to minimize time spent counseling borrowers.
The settlement also requires Navient to notify borrowers about the U.S. Department of
Education’s recently announced PSLF limited waiver opportunity, which temporarily
offers millions of qualifying public service workers the chance to have previously
nonqualifying repayment periods counted toward loan forgiveness—provided that they
consolidate into the Direct Loan Program and file employment certifications by October
31, 2022.
As a result of the settlement, borrowers receiving private loan debt cancellation will
receive a notice from Navient by July 2022, along with refunds of any payments made
on the cancelled private loans after June 30, 2021. Federal loan borrowers who are
eligible for a restitution payment of approximately $260 will receive a postcard in the
mail from the settlement administrator later this spring.
Federal loan borrowers who qualify for relief under this settlement do not need to
take any action except update or create their studentaid.gov account to ensure
that the U.S. Department of Education has their current address. For more
information, visit www.NavientAGSettlement.com.
Until recently, Navient had a contract to service federal student loans owned by the U.S.
Department of Education, including a large portfolio of loans made under the Direct
Loan Program and a smaller portfolio of loans made under the Federal Family
Education Loan (FFEL) program. On October 20, 2021, the U.S. Department of
Education announced the transfer of this contract from Navient to Aidvantage, a division
of Maximus Federal Services, Inc. However, Navient will continue to service federal
student loans made under the FFEL Program that are owned by private lenders, as well
as non-federal private student loans.
The settlement was led by Pennsylvania, Washington, Illinois, Massachusetts, and
California, and was joined by attorneys general in Arizona, Arkansas, Colorado,
Connecticut, the District of Columbia, Delaware, Florida, Georgia, Hawai‘i, Indiana,
Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Michigan, Minnesota, Missouri,
Nebraska, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio, Oregon,
Rhode Island, South Carolina, Tennessee, Vermont, Virginia, West Virginia, and
Wisconsin.