The Navient settlement marks a significant resolution of multiple allegations against Navient Corporation, one of the largest student loan servicers in the United States. The settlement stems from lawsuits and investigations by federal and state authorities, including the Consumer Financial Protection Bureau (CFPB) and a coalition of 39 state attorneys general. These claims alleged deceptive, unfair, and abusive practices concerning the servicing of both federal and private student loans, which financially harmed millions of borrowers nationwide.
Background of the Settlement
Navient, originally part of Sallie Mae before its spin-off, has serviced billions of dollars in student loans for millions of borrowers. Over the years, the company has faced intense scrutiny for how it managed repayment accounts, counseled borrowers, and handled delinquent and defaulted loans.
Investigations revealed that Navient frequently steered struggling borrowers into costly long-term forbearances rather than informing them about more affordable and flexible income-driven repayment plans. Forbearance defers payments but allows interest to accrue, often inflating loan balances and increasing the total repayment amount. The company also allegedly misrepresented aspects of loan forgiveness programs and failed to properly notify borrowers of available relief options.
In addition, Navient faced accusations related to originating risky private student loans, described as subprime, that were likely to default. These loans were allegedly marketed aggressively to schools to secure Navient’s position as a preferred lender while ignoring borrower financial capacity and risks.
Settlement Overview
- Total Relief Fund: Navient agreed to provide $1.85 billion in relief nationwide.
- Private Loan Cancellation: More than $1.7 billion in subprime private student loan debt will be canceled for approximately 66,000 borrowers.
- Restitution to Federal Borrowers: Navient will distribute $95 million in restitution payments to about 350,000 federal loan borrowers who were improperly directed into long-term forbearance, with average payments around $260 per borrower.
- Massachusetts Relief: The state will receive over $6 million, including $2.2 million restitution to more than 8,300 Massachusetts federal loan borrowers and $41 million in private loan cancellation for 1,523 borrowers in the state.
- Legal and Regulatory Payments: Navient agreed to pay $142.5 million to state attorney generals involved in the settlement negotiation.
- Reform Requirements: The settlement requires Navient to enhance borrower communications, fully inform borrowers about income-driven repayment options, provide clear PSLF (Public Service Loan Forgiveness) counseling, and revise employee compensation structures to avoid incentives that discourage borrower counseling.
- Prohibition on Federal Loan Servicing: Navient agreed to cease servicing federal student loans, with their accounts transferred to new servicers like Aidvantage, thus ending Navient’s role in federal loan servicing.
Consumer Financial Protection Bureau (CFPB) Settlement
In addition to the multistate settlement, the CFPB announced a separate $120 million settlement with Navient in 2024. The CFPB settlement includes a $20 million civil penalty and $100 million dedicated to borrower relief. The relief targets federal loan borrowers harmed by Navient’s servicing practices, such as steering people into forbearance plans and failing to provide accurate information about repayment options, ultimately leading to higher costs for borrowers.
The CFPB settlement permanently prohibits Navient from servicing federal student loans, effectively mandating their exit from this market segment.
Who is Eligible for Relief?
Borrowers eligible for relief include those who had federal or private student loans serviced or originated by Navient between approximately 2014 and 2021. Those affected by improper forbearance steering or who hold subprime private loans subject to cancellation may receive direct payments or loan forgiveness. Specific eligibility details and timelines are provided through official settlement notices.
Many eligible borrowers will receive automatic notifications from Navient or settlement administrators and will not need to take extensive action to receive benefits. Others may have to submit claims or update contact information to ensure receipt of payments.
Impact and Significance
The Navient settlement is one of the largest student loan servicing resolutions to date, with substantial financial relief and systemic reforms designed to correct long-standing borrower harms. It underscores the growing regulatory focus on fair student loan servicing practices and borrower protections.
By requiring Navient to exit federal loan servicing and imposing compliance reforms, the settlement aims to benefit millions of borrowers who struggled with confusing repayment options, inflated loan balances, and inadequate counseling.
How Borrowers Can Expect to Benefit
- Cancellation of thousands of dollars in subprime private student loan debt.
- Reimbursement of payments made on improperly serviced loans.
- Access to improved loan counseling and income-driven repayment options through successor servicers.
- Potential credit repair resulting from corrected payment and delinquency reporting.
- Avoidance of aggressive or misleading collection tactics previously alleged in lawsuits.
Conclusion
The Navient settlement represents a significant milestone in the effort to rectify abusive student loan servicing practices and provide meaningful relief to borrowers nationwide. It reinforces the importance of regulatory and legal scrutiny in protecting consumers and taxpayers from predatory lending and servicing tactics.
Borrowers are encouraged to stay informed of settlement updates, verify eligibility, and engage with relief programs promptly to maximize their benefits from this historic agreement. The settlement also marks a turning point toward a more transparent and borrower-friendly student loan servicing landscape in the United States.
