Kris Tripplaar/Sipa USA via Reuters
The loan servicing giant Navient has agreed to cancel $1.7 billion in student loan debts owed by roughly 66,000 borrowers as part of a settlement the company reached Thursday with 39 state attorneys general.
The settlement ends a years-long legal fight in which Navient faced two serious allegations. First, that the company had steered student borrowers into expensive forbearances instead of more flexible, income-based repayment plans.
A 2019 audit by the U.S. Department of Education’s Office of Inspector General corroborated this allegation, finding Navient phone counselors repeatedly recommending forbearance to borrowers without mentioning other, more flexible repayment options.
As part of the settlement, Navient agreed to pay $95 million for states to offer affected borrowers some reimbursement — roughly $260 each to 350,000 borrowers.
The company also faced allegations that its predecessor, Sallie Mae, had made subprime private loans to vulnerable borrowers it knew were likely to default.
States alleged that these private loans were made in cooperation with some for-profit colleges, many with incredibly low graduation rates, as a way of enticing these schools to rely on the company for other student loans as well.
For these affected students, Navient agreed to cancel $1.7 billion in current debts.
“Navient repeatedly and deliberately put profits ahead of its borrowers,” said Pennsylvania State Attorney General Josh Shapiro, a leading voice behind the legal fight.
In a statement, though, Navient made clear this settlement should not be taken as an admission of guilt.
“The company’s decision to resolve these matters, which were based on unfounded claims, allows us to avoid the additional burden, expense, time and distraction to prevail in court,” said Navient Chief Legal Officer Mark Heleen in a statement.