Student Loan Servicer Agrees to Cancel $1.7 Billion of Subprime Student Debt, Pay $95 Million in Restitution over Allegations of Unfair and Abusive Practices

Lori Kalani, Bernard Nash
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  • A bipartisan group of 40 AGs, led by California, Illinois, Massachusetts, Pennsylvania, and Washington, reached a settlement with student loan servicer Navient Corporation and related entities (collectively, “Navient”) to resolve allegations that it used unfair, deceptive, and abusive practices to originate and service student loans.
  • The complaints alleged, among other things, that Navient encouraged distressed borrowers to postpone payments through forbearance instead of enrolling them in low-cost repayment plans, thereby pushing borrowers further into debt as interest kept accruing on their loans during the forbearance period. Navient also allegedly originated predatory subprime private loans for students attending for-profit schools with low graduation rates despite knowing that many such borrowers will not be able to repay the loans.
  • Under the terms of the settlement, Navient will pay $95 million in direct restitution—approximately $260 to each of nearly 350,000 borrowers–and will cancel nearly $1.7 billion of subprime loans. Navient will also change its practices to ensure that borrowers are counseled on the benefits and payment estimates of income-driven repayment plans before placing borrowers into optional forbearances, and will train specialists to help distressed borrowers understand alternative repayment options and counsel public service workers concerning Public Service Loan Forgiveness programs, among other things.
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