Navient banned from servicing federal student loans in $120M settlement
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The Navient Corporation logo is seen displayed on a smartphone and in the background. Photo Illustration: Pavlo Gonchar/SOPA Images/LightRocket via Getty Images
Navient, once one of the largest student loan servicers partnered with the U.S. government, has reached a $120 million settlement with the Consumer Financial Protection Bureau and has been banned from federal student loan servicing, the company confirmed.
Why it matters: The CFPB accused Navient of steering borrowers to costly repayment options and illegally depriving them of their ability to enroll in more affordable income-driven plans.
- CNBC was the first to report a settlement had been reached.
Driving the news: The deal stipulates that $100 million of the total $120 million settlement will be used to make payments to affected customers, while the rest will go to the CFPB's civil penalty fund, per the company.
- "For years, Navient's top executives profited handsomely by exploiting students and taxpayers," CFPB Director Rohit Chopra said in a statement.
- He continued, "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."
- U.S. Under Secretary of Education James Kvaal said in a statement that the action builds on the Biden-Harris administration's work to hold services accountable and provide relief for impacted borrowers.
Catch up quick: The watchdog group sued Navient in 2017, alleging the company misled borrowers, forcing them to pay much more than needed, and harmed the credit reports of disabled borrowers, including severely injured veterans.
- It accused the servicer of misallocating payments and obscuring necessary information to maintain lower payments.
- At the time, Navient was servicing the loans of more than 12 million borrowers — around half of whom were under its contract with the US Department of Education, according to the CFPB.
What they're saying: "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," a Navient spokesperson said in a statement shared with Axios.
Flashback: Navient announced in 2021 that it would no longer service federal student loans and transferred its contract to service government student loans to a third party.
- In 2022, it reached a $1.85 billion settlement with a coalition of 39 state attorneys general over alleged predatory student loan servicing practices.
- The deal required Navient to cancel $1.7 billion in private student loan debts.
- Earlier this year, the company announced plans to outsource servicing of its remaining accounts.
Zoom out: Sen. Elizabeth Warren (D-Mass.) applauded the CFPB in a statement, saying, "millions of people are breathing a huge sigh of relief."
- She added: "Borrowers are finally getting the relief they deserve -- and a guarantee that Navient will never work as a federal student loan servicer again."
- In 2022, Warren had sent a letter to Navient demanding answers about reports it tried "to scam borrowers out of student debt relief."
Zoom in: The CFPB estimates hundreds of thousands of consumers will be included in Navient's redress payments, according to a spokesperson.
- The bureau has yet to determine the exact number of borrowers who will be affected — or the amount they will receive.
Go deeper: Student loan repayments plagued by errors, bad customer service
Editor's note: This story was updated with a statement from Sen. Warren and additional information from the Consumer Financial Protection Bureau.
