More than 400,000 student loan borrowers will receive some debt relief from Navient, according to a $1.85 billion settlement announced Thursday.
The deal would settle a lawsuit brought by multiple state attorneys general that claimed Navient, one of the largest student loan service companies in the US, engaged in unfair practices and predatory loans to students who Were unlikely to be able to pay them back.
About 350,000 federal student loan borrowers, whom Navient placed in long-term forbearance -- which allowed them to temporarily stop making payments -- will each receive about $260, totaling $95 million in restitution.
Additionally, Navient will have to completely cancel the balance of personal loans borrowed by approximately 66,000 students, totaling $1.7 billion. Those loans were largely made between 2002 and 2010.
Pennsylvania Attorney General Josh Shapiro said in a press conference Thursday, "Naviante knew that people depend on their debt to make better lives for themselves and their children and instead of helping them, they scammed multibillion-dollar " He co-led the trial with the attorney generals of Washington, Illinois, Massachusetts and California.
The state attorney general claimed that Navient placed federal student loan borrowers in forbearance rather than instructing them to enroll in low-cost repayment plans. As a result, some of these borrowers went into debt in the form of interest.
The lawsuit also alleges that Naviant was
The lawsuit also alleges that Navient made private loans to students attending for-profit schools and colleges with low graduation rates, even though it knew that a high percentage of those borrowers would be unable to repay the loan.
Navient denied violating any law in the agreement.
"The company's decision to resolve these cases, which were based on unfounded claims, allows us to avoid additional burden, expense, time and distraction in court," said Mark Helen, Navient's chief legal officer, in a statement.
Until recently, Navient had a contract with the U.S. Department of Education to service federal student loans, but the company decided to terminate that contract late last year. Earlier this month, it transferred its federal student loan portfolio to a servicer called Advantage. Private student loans continue to be originated.
The settlement includes borrowers residing in 38 states and Washington, DC. Those who qualify for relief under the settlement need not take any action and can automatically expect to receive notification from Navient later this year once the court approves the settlement. Federal loan borrowers can update or create an online account with the Department of Education to ensure that the agency has their current address.