Student loan provider wiping out $1.7 billion in debt after California, other states sue
Californians will get hundreds of millions of dollars in student loan relief as part of a multistate settlement against one of the nation’s largest private lenders.
California and dozens of other states settled with the company, Navient, over claims of improper lending and collecting practices. Navient will offer $95 million in restitution for borrowers and cancel $1.7 billion in private loan debt for borrowers across the country.
About $11.5 million of the direct restitution and $261 million of the private debt cancellation will be for Californians, according to the California attorney general’s office.
Navient will also have to follow stringent guidelines for lending and collecting, including requiring call agents to clarify how borrowers can lower or stop payments, training specialists for working with at-risk borrowers and limiting certain late fees.
In announcing the settlement, California Attorney General Rob Bonta called on the federal government to act on student loan debt.
“There’s a $1.7 trillion student loan debt crisis in our country,” Bonta said in a press conference about the settlement on Thursday. “We need the companies responsible for servicing federal loans to do better. And we need decisive action from Congress and the Department of Education to tackle the whole scope of this problem.”
Several states filed suit against the lender in 2017; California joined in 2018.
Bonta’s office said that Navient, which was formed when lender Sallie Mae split into two entities in 2014, violated California law by pushing borrowers into costly long-term payment plans that jacked up interest. Navient also deceived consumers by not disclosing information on income-driven repayment programs, among other issues, attorneys general said.
Navient denied allegations, with its chief legal officer saying that the company “is and has been continually focused on helping student loan borrowers understand and select the right payment options to fit their needs.”
“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,” Navient’s Chief Legal Officer Mark Heleen said in a statement on Thursday.
“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,” Heleen added.
About 357,000 borrowers will get $260 in restitution, 43,000 of whom are Californians. About 66,000 borrowers will have their private loan debt wiped out — more than 7,400 of whom are Californians.
Navient will notify people whose debt is canceled and return money from payments made after June 30, 2021, Bonta’s office said, directing consumers to a website dedicated to the settlement. People who are eligible for the restitution payment will get a postcard from the attorney general’s settlement administrator this spring. Eligible borrowers will receive a check, Bonta said, and do not need to take action.
Most of the borrowers would have taken out private student loans from the company when it was still Sallie Mae between 2002 and 2010, per Navient.
Among other administrative changes aimed at bolstering information about payment aid, Navient must notify borrowers of loan forgiveness through programs in the Public Service Loan Forgiveness program, which offers aid for public servants in nonprofit or governmental sectors.
Many of the people affected by the Navient suit took out loans to go to for-profit schools, another target of several of Bonta’s lawsuits.
“So many of us have worked hard to achieve our college dreams,” Bonta said. “But for too many, these dreams have become horrific nightmares trapped by crushing student loan debt.”
Bonta and other states’ attorneys general have sued the United States Education Department over failure to discharge loans from students who attended for-profit, defunct colleges, easing of regulations for such institutions and changes to borrower regulations.
Attorneys general of the following 38 states plus the District of Columbia were part of the lawsuit against Navient: Arizona, Arkansas, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia, Hawaii, Iowa, Illinois, Indiana, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Nebraska, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Vermont, Virginia, Washington, West Virginia and Wisconsin.
This story was originally published January 13, 2022 at 9:59 AM with the headline "Student loan provider wiping out $1.7 billion in debt after California, other states sue."
