Student loan case settled for $1.85 billion
BOSTON — Navient, a major student loan collection company, has agreed to forgive $1.7 billion in debt owed by more than 66,000 borrowers across the United States and pay more than $140 million in other sanctions to address allegations of abusive lending practices.
The settlement with attorneys general from 38 states, including Arkansas and the District of Columbia, was announced Thursday.
Navient “engaged in deceptive and abusive practices, targeted students it knew would struggle to repay their loans, and placed an unfair burden on people trying to improve their lives through education” , said Pennsylvania Attorney General Josh Shapiro, who helped lead the negotiations. in a report.
Among other things, he said, Navient tricked borrowers who were struggling to make payments into entering what are known as long-term forbearances, causing them to indebted even more.
Forbearance occurs when lenders allow borrowers to suspend or reduce payments for a limited time while they rebuild their finances. However, interest on the loan continues to accrue and may eventually result in an increase in the amount paid over the life of the loan.
Navient has denied acting unlawfully and has not admitted any wrongdoing under the settlement, which is subject to court approval.
“Navient is and has always been focused on helping student borrowers understand and select the right payment options to meet their needs,” Chief Legal Officer Mark Heleen said in a statement.
In addition to forgoing tens of thousands of loans, Navient will pay $142.5 million, most of which will go in restitution.
About 350,000 federal student borrowers who have been placed in some type of long-term forbearance will receive payments of about $260 each.
Eligible borrowers will receive a postcard in the mail this spring from the Settlement Administrator.
Additionally, Navient will need to do more to educate borrowers about their options and explain repayment plans.
Massachusetts Attorney General Maura Healey called the settlement “an important step toward solving our broken student loan repayment system.”
Among those who will benefit is Ashley Hardin, 38, of Seattle. Hardin defaulted on about $108,000 in private student debt in 2020 after struggling for more than a decade to pay off a loan she used to attend the Brooks Institute of Photography in California.
His monthly payments were often higher than his rent. For a time, Navient agreed to reduce her payments to around $650 per month, but by the end of that period she again owed more than $1,000, having to pay compound interest.
“It’s a huge weight lifted,” said Hardin, who was unable to pursue a career in photography in Seattle and now runs a food truck with her husband. “I can breathe again and feel like I’m not drowning, like I’m not going to get a call tomorrow that they’re suing me for misconduct.”
Nicole Scavo, 33, is one of the beneficiaries of the debt forgiveness. She got a call from Shapiro’s office telling her that the $81,685 she owed for her certificate in restaurant management from the Art Institute of New York, which closed in 2019, would be forfeited.
“I can’t explain how grateful I am,” said Scavo, whose training never led to a job in the field. “These loans affect everything. Because my debt-to-income ratio is so high, I can’t get good rates on a car loan or a mortgage.”
Scavo, who works for a pharmacy in Pennsylvania, originally borrowed about $39,000 in 2007, but the interest rate on his loans ranged from 9% to 12%. She struggled to keep up with her payments over the years and feared the debt would make home ownership impossible. Now, she said she looks forward to a financial future with better possibilities.
Borrowers whose loans are canceled will receive notice from Navient along with a refund of any payments made after mid-2021.
The settlement also includes Arizona, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Michigan, Minnesota, Missouri, Nebraska, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio, Oregon, Rhode Island, South Carolina, Tennessee, Vermont, Virginia, Washington, West Virginia and Wisconsin.
Information for this article was provided by Steve LeBlanc and Gene Johnson of The Associated Press; and by Danielle Douglas-Gabriel of the Washington Post.