Navient reaches $120 million settlement for misleading student loan borrowers

Navient, once one of the nation's largest student loan servicers, has reached a $120 million settlement with the Consumer Financial Protection Bureau (CFPB) — permanently barring the company from servicing federal student loans.

In a settlement announced Thursday, the CFPB said Navient must pay $20 million in fines and provide $100 million in relief to affected borrowers. The bureau says it will mail checks to eligible borrowers, who do not need to take any action at this time.

The CFPB did not detail how many eligible borrowers will receive in terms of payment.

“For years, Navient's top executives profited handsomely from exploiting students and taxpayers,” CFPB Director Rohit Chopra said in a statement.

“By banning the notorious student loan giants from servicing federal student loans and ensuring that these practices cease, the CFPB will finally end years of abuse,” he added.

The settlement closes the loop on a 2017 lawsuit filed by the bureau, which claimed the Virginia-based company (which was spun off from private student loan servicer Sallie Mae) misled student loan borrowers and improperly processed their payments.

In a detailed report, the bureau argued that Navient violated the Consumer Financial Protection Act, the Fair Credit Reporting Act and the Fair Debt Collection Practices Act. Additionally, the CFPB alleged that Navient misled and harmed student loan borrowers:

• Misleading borrowers about income-driven repayment plans
• Botching payment processing
• Damage to the credit of disabled borrowers, including seriously injured veterans
• Deceiving borrowers about Navient's requirement for cosigner release
• and, improving credit scores and misleading borrowers about the consequences of federal student loan rehabilitation

Navient, at the time, was one of the largest companies contracted by the US Department of Education to service federal student loans. But in July 2021, the company announced it would no longer service federal student loans.

The former student loan servicer has serviced more than 12 million borrowers and about $300 million in federal and private student loans, the CFPB said.

Navient, which split from Sallie Mae 10 years ago, said in a statement that the deal “puts these decades-old issues behind us.” The agency said it disagrees with the CFPB's complaint.

“While we disagree with the CFPB's complaint, this resolution is consistent with our progress and is an important positive milestone in our company's transformation,” Navient said.

In 2022, Navient reached a settlement with 39 state attorneys general and agreed to cancel $1.7 billion in loans owed to about 66,000 borrowers.

The 2022 settlement ended another year-long legal battle with the states in which Navient faced two serious charges.

At the time, the company was accused of burdening student borrowers in exchange for more flexible, income-driven repayment plans. The company also faced allegations that its former owner, Sallie Mae, made subprime private loans to vulnerable borrowers who knew it was likely to default.

As part of that settlement, Navient agreed to pay states $95 million to pay some restitution to affected borrowers — about $260 to each of the 350,000 borrowers.