Navient, once one of the country’s largest student loan servicing companies, reached a $1.85 billion deal with 39 states to settle claims that it had made predatory loans that saddled borrowers with crushing debts they were highly unlikely to repay.
The deal, announced Thursday, requires Navient to cancel $1.7 billion in delinquent private student loan debts for nearly 66,000 borrowers and pay $95 million in restitution. The private loans were crucial to Navient’s ability to make a large volume of lucrative federal loans, prosecutors said.
“Navient repeatedly and deliberately put profits ahead of its borrowers — it engaged in deceptive and abusive practices, targeted students who it knew would struggle to pay loans back and placed an unfair burden on people trying to improve their lives through education,” said Josh Shapiro, the attorney general of Pennsylvania, one of several states that had sued Navient.
Most of those who took out the loans that will be forgiven under the settlement attended for-profit schools — like the defunct ITT Technical Institute — that often have low graduation rates and poor job-placement records. The private loans were — in Navient’s own words, according to legal filings — a “baited hook” to reel in more federally backed loans.
At some schools, Navient anticipated that more than 90 percent of the loans would default. But what it lost on the private loans was far outweighed by what it gained on the federal loans — guaranteed by the government — that students at those schools took out.
Under Education Department rules, no more than 90 percent of a school’s tuition payments can come from federal funding. The private loans were intended, according to court filings, to fill that gap and attract students who would then take out the lucrative federal loans that the schools — and Navient — relied on.
Navient, which did not admit any fault in the settlement, said in a statement that it did not act illegally. “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 Mark Heleen, Navient’s chief legal officer.
The deal, which covers only borrowers from participating states and Washington, D.C., ends a major portion of a set of linked legal actions that began five years ago, when federal and state prosecutors sued the company, which was at the heart of the student debt collection system.
The Consumer Financial Protection Bureau sued in federal court over what it called mistakes and tactics by Navient that inflated borrowers’ bills by billions of dollars. Several state attorneys general also filed state lawsuits claiming that Sallie Mae — Navient’s predecessor company, from which it split off in 2014 — made private, subprime loans to borrowers it knew had weaker credit and were likely to default.
Those claims are the focus of the settlement that was announced on Thursday, but it also resolved the states’ charges that Navient inflated borrowers’ bills by steering federal loan borrowers into costly long-term forbearance instead of more affordable income-based …….