Navient to cancel $1.7 billion in student debt as part of settlement

The headquarters of Navient Corp.
Navient Corp., with headquarters in Wilmington, Del., has settled allegations of deceptive lending practices. The settlement involves 39 state attorneys general.
(William Bretzger / Associated Press)

Navient, a major student loan servicing company, has settled allegations of deceptive lending practices for $1.85 billion, officials said Thursday in announcing a settlement that would cancel the debt of tens of thousands of borrowers.

The settlement includes $1.7 billion in debt cancellation and $95 million in restitution and involves 39 state attorneys general. It resolves allegations that Navient led student borrowers into long-term forbearances instead of giving them advice on less-costly repayment plans, said Pennsylvania Atty. Gen. Josh Shapiro, who co-led the litigation and negotiation of the settlement with the states of Washington, Illinois, Massachusetts and California.

“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,” Shapiro said in a statement.

The settlement will require court approval.

Under the terms of the settlement, Navient will cancel more than $1.7 billion in subprime private student loans owed by more than 66,000 borrowers nationwide, Shapiro said. Navient will also pay a total of $142.5 million, of which $95 million will be distributed to approximately 350,000 federal loan borrowers who were placed in certain types of long-term forbearances.

Shapiro said the subprime loans were made “to borrowers they knew could not pay the money back,” a situation similar to the 2008 mortgage crisis. Additionally, he said, Navient “misled borrowers into forbearances ... and led many to accumulate more debt and never-ending interest payments.”


Forbearance refers to when a lender allows a borrower to pause or reduce payments for a limited time while they build back their finances. However, interest on the loan continues to accrue and could ultimately cause the amount to be repaid over the life of the loan to be higher.

Navient said it did not act illegally, and it did not admit any fault in the settlement.

“Navient is and has been continually focused on helping student loan borrowers understand and select the right payment options to fit their needs. In fact, we’ve driven up income-driven repayment plan enrollment and driven down default rates, and every year, hundreds of thousands of borrowers we support successfully pay off their student loans,” Navient Chief Legal Officer Mark Heleen said in a statement.

The settlement requires Navient to explain the benefits of income-driven repayment plans and to offer to estimate income-driven payment amounts before placing borrowers into optional forbearances.

Navient must also train specialists who will advise distressed borrowers concerning alternative repayment options and counsel public service workers concerning Public Service Loan Forgiveness and related programs.

As a result of the settlement, consumers receiving private loan cancellation will receive a notice from Navient along with refunds of any payments made on the canceled loans after June 30, 2021.

“Today’s settlement requires Navient to fix their mistakes ... and is an important step toward addressing our broken student loan repayment system,” Massachusetts Atty. Gen. Maura Healey said at a news conference.

The settlement also requires Navient to notify borrowers about the U.S. Education Department’s recently announced Public Service Loan Forgiveness limited waiver opportunity, which temporarily offers millions of qualifying public service workers the chance to have previously nonqualifying repayment periods counted toward loan forgiveness, provided that they consolidate into the Direct Loan Program and file employment certifications by Oct. 31.