Student-Loan Processor Navient to Cancel $1.7 Billion of Debts

“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.

All of the loans forgiven in the agreement were in default, and most originated between 2002 and 2010 at

Sallie Mae,

prior to Navient’s spinoff from the student-lending giant.

Navient has faced numerous lawsuits in recent years that alleged the company engaged in unfair and deceptive conduct against borrowers. Last March, a Seattle-area judge ruled that the company had broken a consumer protection law in a case brought by Washington’s attorney general.

“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,” Pennsylvania Attorney General Josh Shapiro said.

In addition to loan cancellation and some restitution for borrowers with private loans, Navient will pay $95 million to about 350,000 federal loan borrowers—or about $260 each—who were placed into certain types of forbearance programs that caused them to accumulate more debt rather than entering income-based repayment plans, the states said.

States will distribute restitution to borrowers within their jurisdictions. Massachusetts, for example, will receive more than $6 million, including $2.2 million in restitution for more than 8,300 federal loan borrowers, state Attorney General Maura Healey said.

As part of the agreement, Navient continued to deny the claims or that the company has harmed any borrowers.

Private loans without federal backing make up less than 10% of the total $1.7 trillion student-loan industry. About 43 million people owe $1.6 trillion in federal student debt, Education Department data show. About 5.2 million of those federal borrowers are in default. Those borrowers, unless they also held private student loans, are not affected by Thursday’s settlement.

Navient is in the midst of an exit from federal student-loan processing. It has been one of the primary federal contractors, serving around six million borrowers. Its accounts are being transferred to a new contractor, Maximus, whose role was approved by the Education Department.

The Biden administration is in the midst of restructuring its student-loan processing system. In November it announced it was ending its relationship with private collection agencies that had been tasked with recovering payments from federal student-loan borrowers in default to improve collections and provide borrowers with more support.

Last February, borrowers petitioned a bankruptcy court in New York to force Navient’s loan-processing unit into bankruptcy, alleging the company had improperly collected debts they didn’t owe. The company called the claims frivolous, and a judge dismissed the case.

The Consumer Financial Protection Bureau has been suing Navient since 2017 over allegations that it steered borrowers into postponing payments instead of entering lower-cost, income-driven repayment plans. The CFPB has said the practice cost borrowers $4 billion in interest expense. Navient has disputed the government’s claims.

Write to Gabriel T. Rubin at [email protected]