The federal government reached a landmark settlement this week with student loan giant Navient. If approved by a court, the agreement could result in $100 million in monetary compensation issued to borrowers.
The settlement was reached following years of litigation between the Consumer Financial Protection Bureau —a federal watchdog agency that oversees the financial services sector, including student loan companies — and Navient, historically one of the nation’s largest student loan entities that has, at various times, handled both federal and private student loans. In addition to substantial financial penalties, the agreement would prohibit Navient from ever managing Direct federal student loans again.
“For years, Navient’s top executives profited handsomely by exploiting students and taxpayers,” said CFPB Director Rohit Chopra in a statement on Thursday. “By banning the notorious student loan giant from federal student loan servicing and ensuring the winddown of these operations, the CFPB will finally put an end to the years of abuse.”
Here’s what borrowers need to know about the proposed agreement.
Allegations That Navient Botched Payments And Mismanaged Student Loan Forgiveness
The CFPB originally filed a lawsuit against Navient in 2017, alleging that the company engaged in widespread misconduct that deceived and harmed untold numbers of student loan borrowers.
Navient “serviced student loans of more than 12 million borrowers, including more than 6 million accounts under its contract with the Department of Education,” said the CFPB in its statement on Thursday “Altogether, it serviced more than $300 billion in federal and private student loans.” The CFPB accused Navient of “failing borrowers at every stage of repayment.” Specifically, the CFPB alleged that Navient engaged in multiple forms of misconduct, including:
- Misleading borrowers about income-driven repayment plans and eventual student loan forgiveness, such as by failing to properly notify borrowers about annual income recertification requirements or neglecting to tell borrowers that submitting an incorrectly completed IDR application could cause long-term problems, including delayed student loan forgiveness;
- Misallocating payments for borrowers who had multiple student loans serviced by Navient;
- Harming the credit of borrowers who had received loan forgiveness based on medical impairments, including severely injured veterans; and
- Providing misinformation to borrowers about cosigner releases and student loan rehabilitation programs.
Navient has consistently denied the allegations brought by the CFPB. And student loan servicing advocacy organizations have accused the CFPB of failing to back up its sweeping claims with sufficient evidence.
“This agreement puts these decade-old issues behind us,” said a spokesperson for Navient in a statement on Thursday. “While we do not agree with the CFPB’s allegations, this resolution is consistent with our go-forward activities and is an important positive milestone in our transformation of the company.”
Borrowers Will Not Receive Student Loan Forgiveness Through Settlement, But May Get Monetary Compensation
Under the proposed terms of the settlement, Navient would effectively be prohibited from managing most federal student loans going forward.
“Navient would no longer be able to service federal Direct Loans and, with certain limited exceptions, no longer be able to acquire Federal Family Education Loan Program loans,” said the CFPB in its statement. As a practical matter, Navient has already withdrawn from the Direct loan servicing system, having transferred its Education Department portfolio to Aidvantage, and started transferring FFEL-program accounts to other servicers earlier this summer.
Borrowers will not receive any student loan forgiveness as a result of the settlement. However, eligible borrowers may receive monetary compensation from a $100 million payment Navient would be required to make to the CFPB.
“Navient will be required to provide $100 million in redress for affected consumers,” says the CFPB. No details were provided on eligibility criteria, the number of borrowers who may qualify for compensation, or the size of individual monetary awards. But the CFPB indicated that the agency will determine who is eligible, and will send out payments accordingly. Borrowers will not have to take any direct action.
“The CFPB will mail checks to consumers who are eligible to obtain redress under the settlement,” said the agency. “Consumers do not need to do anything to obtain redress and should be aware of scammers that may try to use CFPB employees’ names and imagery to try to steal money or private information.”
What’s Next For The Navient Settlement
Importantly, the Navient settlement has not yet been finalized. The CFPB filed a proposed order in federal court on Thursday, outlining the terms of the settlement. The court must then approve the settlement for the relief to begin.
The CFPB has not provided a timeline on when covered borrowers are expected to start receiving checks from the monetary compensation.
“On the CFPB’s webpage, consumers can obtain general information about CFPB redress checks and more information about how to avoid potential scams,” said the agency’s statement.