One of the largest student loan processors in the US will cancel balances for 66,000 borrowers following a multi-state agreement with a bipartisan coalition of 39 attorneys general stemming from a series of lawsuits.
The servicer will cancel $1.7bn in private student loan debts and pay $95m to settle claims of predatory lending, according to the agreement.
“Today’s billion-dollar agreement will bring relief to thousands of borrowers in New York and across the nation and help them get back on their feet,” she said in a statement. “Navient will no longer be able to line its pockets at the expense of students who are trying to earn a college degree.”
Navient’s chief legal officer Mark Heleen said the agreement, in which the company does not admit fault, resolves matters raised in six outstanding state lawsuits “which were based on unfounded claims” but “allows us to avoid the additional burden, expense, time and distraction to prevail in court”.
An investigation found that the company steered borrowers into long-term forebearances resulting in costly interests that pushed them further into debt.
The probe also determined that Navient provided “predatory, subprime, private loans to students attending for-profit schools and colleges with low graduation rates” while knowing there was a greater likelihood that many of those borrowers would be unable to repay the loans, ensaring borrowers and their families into maintaining massive balances, according to the office of the New York Attorney General.
No more than 90 per cent of tuition payments can come from federal funding, under rules from the US Department of Education. In court documents, it was argued that private loans were intended to lure students into taking out larger federal loans by filling the gaps.
In addition to cancelling balances and providing restitution to some private borrowers, Navient will also pay $95m to 350,000 federal loan borrowers (who will receive roughly $260 each) who were enrolled in forbearance programs that extended their debts rather then using income-based repayment plans, according to the agreement.
Navient was formed in 2014 after spinning off from loan company Sallie Mae. It ended its Education Department contract last year and is transferring service of its millions of borrowers to another contractor while retaining billions of dollars in private loans.
More than 40 million Americans hold roughly $1.75 trillion in student loan debt, most of which is wrapped up in federal loans.
Private loans without federal support account for less than 10 per cent of that balance.
Student debt exploded within the last decade alongside steep cuts from federal and state governments into higher education as private university enrolment grew.
Over the last several decades, governments have stripped investments in higher education while tuition has spiked, putting the burden of costs on students. Meanwhile, federal policy changes effectively eliminated limits on borrowing, and predatory lending schemes and sky-high interest rates have trapped generations of borrowers into a lifetime of debt.
“At long last, the student loan borrowers who had been forced to shoulder the burden of dangerous and predatory private student loans made by Sallie Mae and owned by Navient will finally be debt free,” Student Borrower Protection Center executive director Mike Pierce said in a statement.
On 22 December, President Joe Biden extended a pause on federal student loan repayments and froze interest rates to zero for at least a few more months. That pause will now come to an end in May.