I can’t think of anyone who is a fan of the student loan companies (perhaps other than the companies themselves and their enablers at the Department of Education). While more people now have college degrees, it has come at a steep cost. And that cost has included predatory practices by federal student lenders. One of the most notorious lenders has been Navient.
I’ve had a number of clients who have had bad experiences with Navient. Terrible customer service, endless compounding interest, no help anywhere. And now the company’s horrendous practices have finally caught up.
What Was the Dispute with Navient?
Thirty-nine attorneys general brought suit against Navient for predatory lending practices. The bipartisan coalition alleged that since 2009, the lender steered borrowers into costly forbearance programs instead of helping them pay off the balance.
The push into forbearance (with interest still accruing) placed borrowers further into debt, with some owing far more than they originally borrowed. Navient also issued subprime loans to students who the company knew could not fully pay back the loans—effectively trapping these borrowers in financial bondage.
But now, Navient was backed into a corner, and it’s time to pay up.
The Settlement Terms
The coalition of attorneys general announced that Navient will have to pay a total of $1.85 billion in loan cancelation and restitution to borrowers for their actions.
The lender will have to cancel $1.7 billion in loans for 66,000 borrowers. It will also have to pay $95 million in restitution to $350,000 borrowers. The agreement also requires Navient to inform borrowers a limited waiver opportunity for the Public Service Loan Forgiveness program.
I address the pitfalls of that program in another article. You can read it here.
This is probably one of the biggest, if not the biggest settlement agreement in student loan history. The federally-backed student loan industry has made billions of dollars off of naïve students who really did not know what they were getting into.
By putting all the risk onto taxpayers through federal guarantees, the lenders get all the rewards without the risks. And yet, in spite of the $1.6 trillion owed by students, and all of the bondage that so many are in, the program continues.
What Navient’s Settlement Means
The company is not admitting to wrongdoing by agreeing to settle the claims. Most civil lawsuits are settled out of court, and the defendant party will frequently make statements that disclaim any liability or wrongdoing. That’s common practice in litigation and this is certainly no exception.
But let’s face it: a $1.85 billion settlement is absolutely massive. Navient would not have settled for that amount if the company believed it would prevail in court. For a few hundred million? Maybe.
But when the settlement is for almost $2 billion, I think that shows the company implicitly knew their practices were wrong and didn’t want to have something even worse in a court of law’s final judgment.
Dave Ramsey and John Delony discussed this on the Ramsey show. Listen to their dialogue below.
As I wrote in June 2020, student loan servicers are changing. Navient (and the other lenders) will be exiting the student loan industry. Borrowers will have a new company handling their debt. The details on that transition will be coming soon.
Whether this will make the crisis any better remains to be seen (color me skeptical). But, if anything, at least the most-disliked lender is on the way out.
Yet the ultimate problem still remains: the student loan system that enables the financial bondage of so many students. It doesn’t have to be this way. But we need to start making hard choices as a culture to reverse the trend.
For what it’s worth, in my final semester of law school, I am writing an independent study on student loans and the law. My project will discuss how Congress and the Department of education have enabled these lenders to make these predatory lending schemes. I will also offer some solutions to start fixing the problems.
In the meantime, I’ve got a lot of people to help. I aim to do my part in freeing Americans from this indentured servitude one household at a time.
If you’re ready to escape student loan debt, book your free Discovery Session with me today.