Navient Banned From Servicing Federal Student Loans
Credit: Bloomberg / Getty Images- A former student loan servicing giant will no longer be allowed to service federal student loans.
- The company must also pay $120 million as part of a recent settlement.
- Many borrowers can soon expect a check in the mail thanks to the settlement.
A federal watchdog has banned Navient from participating in the federal student loan system and levied a $120 million fine on the loan servicing company.
The Consumer Financial Protection Bureau (CFPB), the federal government’s consumer watchdog agency, filed the ban with the U.S. District Court for the Middle District of Pennsylvania on Sept. 12.
The ban settles a 2017 CFPB lawsuit claiming the company misled student loan borrowers and processed their payments incorrectly.
In addition to the ban, the settlement requires Navient to pay $100 million to impacted borrowers and another $20 million to the CFPB.
“For years, Navient’s top executives profited handsomely by exploiting students and taxpayers,” CFPB Director Rohit Chopra said in a statement. “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.”
The 2017 lawsuit accused Navient of steering borrowers toward loan forbearance rather than more economical income-driven repayment (IDR) plans. Borrowers who moved loans into forbearance didn’t need to make payments, but interest continued to accrue on those loans, causing loan balances to continually tick upward.
“For decades, Navient’s abusive servicing practices kept borrowers from the promise of affordable repayment and trapped them in ballooning, neverending debt,” Persis Yu, deputy executive director of the Student Borrower Protection Center (SBPC), said in a statement. “Today’s settlement will ensure that Navient will never be able to hurt borrowers on the government’s dime again.”
Borrowers impacted by Navient’s actions will receive a check from the CFPB and don’t need to take any specific actions. The CFPB also warned borrowers to be on the lookout for potential scams that may use this settlement as an opportunity to defraud people.
Navient neither admits to nor denies any of the allegations the CFPB made as part of the settlement, according to court filings.
In a statement, Navient said that the agreement with the CFPB, “puts these decade-old issues behind us.”
“While we do not agree with the CFPB’s allegations, this resolution is consistent with our go-forward activities and is an important positive milestone in our transformation of the company,” Navient said in a statement.
Ahead of the ban, Navient was already distancing itself from loan servicing.
In 2021, the company moved its government student loan servicing to a third party, and in January 2022, Navient settled with 39 attorneys general to cancel $1.7 billion in private student loan debt. The joint lawsuit alleged that Navient disbursed predatory subprime private loans to students attending for-profit schools and other institutions with low graduation rates.
Navient also admitted no wrongdoing in the 2022 decision.
In May, Navient announced that the Missouri Higher Education Loan Authority (MOHELA) would take over its Federal Family Education Loan portfolios.