Navient faces a ban from servicing federal student loans after the Virginia-based financial services company settled a lawsuit with the Consumer Financial Protection Bureau (CFPB) for $120 million.
The CFPB filed a proposed order against Navient on Thursday “for its years of failures and lawbreaking,” the consumer watchdog agency said in a news release. Navient did agree to the order without admitting any wrongdoing, but it still has to be entered by the court.
The order would permanently ban Navient from servicing federal direct loans and would prohibit the company from directly servicing or acquiring most loans under the Federal Family Education Loan Program.
CFPB’s 2017 lawsuit against Navient, which was the largest student loan servicer in the U.S. at the time, accused the company of leading borrowers who may have qualified for income-driven repayment plans into forbearance instead. Forbearance is a temporary hold on loan payments in which interest continues to accrue and capitalize.
The headquarters of student loan debt collector Navient Corporation is seen in Wilmington, Delaware, on April 2, 2014. Navient faces a ban from servicing federal student loans after the Virginia-based financial services company settled a lawsuit with the Consumer Financial Protection Bureau (CFPB) for $120 million.
William Bretzger/The Wilmington News-Journal via AP
“This practice was cheaper and simpler for Navient, but detrimental to borrowers,” the consumer watchdog said in Thursday’s news release. “Navient’s illegal actions led numerous borrowers to pay additional interest charges.”
Navient will pay $100 million in relief to affected borrowers as well as a $20 million penalty, which will go into the CFPB’s Civil Penalty Fund under the proposed order. The Civil Penalty Fund is used to help compensate victims who wouldn’t otherwise receive money from the defendant in the case.
“For years, Navient’s top executives profited handsomely by exploiting students and taxpayers,” CFPB Director Rohit Chopra said in Thursday’s news release. “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.”
Meanwhile, Navient said in a press release on Thursday, “This agreement 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 stopped servicing federal student loans in 2021 when it transferred its contract with the government to a third party.
The company has faced other legal battles for alleged unfair practices, including its $1.85 billion settlement in 2022 in a lawsuit brought on by several state attorneys general. Navient and Sallie Mae, which used to be one company, also had to pay a $96.6 million settlement that the Federal Deposit Insurance Corporation ordered in 2014.
This article includes reporting from The Associated Press.
