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Navient, once the largest student loan servicer in the United States, faces a permanent ban on offering direct loans and other financial assistance programs following a lawsuit by the Consumer Financial Protection Bureau (CFPB).
The order also calls for $120 million in penalties, of which $100 million is for borrower compensation and an additional $20 million in fines.
The CFPB's lawsuit, which began in 2017, accused Navient of numerous illegal practices, including shifting borrowers into costly forbearances instead of income-driven repayment (IDR) plans that could have significantly reduced their payments. By prioritizing forbearances, Navient allowed interest to accrue, causing many borrowers to pay higher interest rates than they would have under IDR plans.
The proposed settlement, if approved by the court, will effectively relieve Navient of its responsibility for servicing federal student loans.
Navient lawsuit
The lawsuit makes clear that Navient misled borrowers about the benefits of income-driven repayment plans and failed to inform them of the need for annual recertification, often resulting in higher monthly payments.
The company also made numerous processing errors, including misallocating payments and harming the credit scores of disabled borrowers. A 2022 settlement with 39 state attorneys general shed light on the company's illegal practices, including issuing usurious student loans.
While Navient will continue to service some FFELP loans, the ruling prohibits it from originating new loans or directly servicing FFELP loans. In addition, Navient must comply with strict requirements to protect borrowers' rights, including ensuring reasonable access to affordable repayment options.
Impact on student loan borrowers
The order also requires Navient to:
- Payment of $100 million in compensation to consumers: Navient will be required to pay $100 million in compensation to affected consumers.
- Payment of a $20 million penalty: Navient will contribute $20 million to the CFPB's Victim Assistance Fund.
While it is unclear how the funds will be disbursed to consumers harmed by Navient, it is a victory for borrowers who have had difficulty repaying their loans due to loan servicing issues.
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