The Navient lawsuit focuses on the deceptive and predatory lending practices of the nation’s largest student loan servicing company. The company, formerly owned by Sallie Mae, has pleaded guilty to the allegations and agreed to settle with the states. The settlement will bring $95 million in direct restitution to student borrowers and $142 million to attorneys’ general and state initiatives. Although the case continues to unfold, it is the largest ever student loan settlement in the nation.
400,000 eligible borrowers
A class-action lawsuit has been filed against Navient for unfair practices related to private student loans. The lawsuit claims that Navient discriminated against students and borrowers with low credit scores. The company is responsible for delinquent student loans, and the lawsuit aims to make them whole. As a result, an estimated 400,000 eligible borrowers have been identified. The lawsuit is aimed at helping them pay off their loans, and the settlement money will go to those who were targeted the most.
The settlement has resolved several of the claims that Navient inflated borrowers’ bills, causing them to default on their loans. It also requires Navient to provide restitution to federal loan borrowers and reform loan-servicing practices. A restitution payment of $260 per borrower is part of the settlement. The plaintiffs also hope that the lawsuit will lead to reforms in the loan-servicing industry.
$1.85 billion settlement
The $1.85 billion settlement in the Avant lawsuit brings to an end a long series of legal actions against the company. Navient was at the heart of the student debt collection system, and the Consumer Financial Protection Bureau sued the company over mistakes it made. The agency claims Navient’s tactics inflated student loans by billions of dollars. Other state attorneys general have filed lawsuits against Navient and its predecessor, Sallie Mae. The lawsuits claimed that Sallie Mae knew that some of its borrowers were not financially sound and should not be approved for their loans.
The settlement also involves the cancellation of nearly $1.7 billion in subprime private student loan balances. The company will also pay $142.5 million to the attorney’s general, and another $95 million will go to approximately 350,000 borrowers who obtained federal student loans through Navient. These practices harmed borrowers across all generations, from the early college students who enrolled in for-profit schools to mid-career individuals who dropped out.
Misleading borrowers
A new lawsuit alleges that Navient violated the state’s Unfair Competition Law and False Advertising Law by misleading borrowers. The lawsuit claims that Navient steered vulnerable borrowers into costly forbearances and failed to disclose the benefits of income-driven repayment programs. The company’s response has been a mixed one. In December 2020, Navient attempted to dismiss the class-action lawsuit. However, a ruling will likely come before that date.
The company has not yet admitted any wrongdoing, but it did concede that it misled many of its borrowers, mainly those in public-service professions. This allegedly prevented them from transferring their loans to another company because of the associated fees. In exchange for the settlement, Navient will improve its staff training on the PSLF and donate $1.75 million to a nonprofit student loan counseling group. The money will go to attorneys for the class, but the money will not go to borrowers.
Failure to explain benefits of income-driven repayment plans
The Consumer Financial Protection Bureau recently filed a lawsuit against Navient for failing to act on complaints and incorrectly processing payments, and not properly educating borrowers about the benefits of income-driven repayment plans. The lawsuit alleges that Navient steered borrowers away from income-driven repayment plans and that it improperly processed extra payments, resulting in late fees, interest charges, and negative credit reporting.
The lawsuit alleges that Navient failed to adequately explain the benefits of income-driven repayment plans and other loan modification programs to consumers, which led to borrowers becoming trapped inexpensive long-term forbearances. This occurred because Navient failed to explain the benefits of these plans to borrowers, and thus misled many borrowers into accepting these programs. Furthermore, the interest accrued during these periods was not deducted from the balance of the loans, making the borrowers even further into debt.
Penalizing borrowers for paying in advance
A Washington state judge has ruled that the loan service Navient was in violation of the Consumer Protection Act and must pay a penalty to borrowers who paid in advance of the loan. The ruling follows a multi-year investigation into Navient’s practices. Its consumer-oriented business model was characterized by deceptive advertising and high-interest rates. Most borrowers were sucked into a loan that turned out to be worthless, but the Navient lawsuit aims to give them a second chance to get a fresh start.
The company, which was once part of the Sallie Mae group, made private loans to borrowers it knew could not pay them back. This practice helped it attract federal loans and fill voids for borrowers with government-backed loans. However, it burned borrowers who made extra payments. The company processed extra payments incorrectly, resulting in late fees, interest charges, and negative reports from credit reporting agencies.