Navient, once a giant in student loan servicing, faces a permanent ban and a hefty $120 million settlement for alleged misconduct.
At a Glance
- Navient banned from servicing federal student loans by U.S. regulator
- Ordered to pay $120 million for wide-ranging student lending failures
- Ban covers federal direct loans and most Federal Family Education Loan Program loans
- Settlement includes $100 million in restitution and $20 million civil fine
- Navient denies allegations but views settlement as “positive milestone”
Regulatory Action Against Navient
On September 12, 2024, the Consumer Financial Protection Bureau (CFPB) announced a landmark decision to indefinitely ban Navient, formerly the largest student loan servicer in the United States, from administering federal student loans. This action comes as part of a settlement requiring Navient to pay $120 million for alleged regulatory violations and predatory practices.
The ban prevents Navient from servicing federal direct loans and most loans under the Federal Family Education Loan Program. This decision marks a significant shift in the student loan servicing landscape, affecting millions of borrowers nationwide.
Today, @CFPB is ordering @Navient to pay $120 million in refunds and penalties for its wide-ranging student loan servicing failures. More importantly, Navient, formerly known as Sallie Mae, will be banned from ever directly servicing federal student loans. https://t.co/NmMuALn1wO
— Rohit Chopra (@chopracfpb) September 12, 2024
Allegations and Financial Penalties
The CFPB accused Navient of steering borrowers into costly repayment strategies, causing higher interest payments. Additionally, the company was faulted for payment processing mistakes and misleading borrowers about their options. These actions violated multiple consumer protection laws, including the Consumer Financial Protection Act, Fair Credit Reporting Act, and Fair Debt Collection Practices Act.
“For years, Navient’s top executives profited handsomely by exploiting students and taxpayers,” said CFPB Director Rohit Chopra. “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.”
The settlement mandates Navient to pay $100 million in restitution to affected borrowers and a $20 million civil fine. This action is part of a broader initiative by the CFPB to ensure accountability among loan servicers and protect borrower interests.
Navient’s Response and Previous Settlements
While Navient has disagreed with the allegations, the company views the settlement as a “positive milestone” in its transformation. In a statement, Navient said the resolution “puts these decade-old issues behind us” and is “consistent with our go-forward activities.”
This is not the first time Navient has faced legal action. In January 2022, the company settled for $1.85 billion with 38 states and Washington, D.C. over predatory loan charges. The current settlement resolves a lawsuit filed by the CFPB in January 2017 in Scranton, Pennsylvania, which still requires a judge’s approval.
Impact on Borrowers and Future Outlook
The CFPB’s investigation has led to more than $50 billion in debt relief for over 1 million borrowers. Eligible consumers will receive checks for redress, and the CFPB warns against potential scams related to the settlement.
“I applaud the CFPB for obtaining concrete relief for borrowers and deterring similar failures in the future,” said U.S. Under Secretary of Education James Kvaal. “Today’s action builds on the Biden-Harris Administration’s work to hold loan servicers accountable and protect borrowers, including more than 1 million borrowers who have received debt relief by fixing past failures to properly track progress toward forgiveness, such as correcting harms from forbearance steering.”
