ST PAUL, Minn. — Navient, a major student loan servicing company, has settled allegations of predatory lending practices for $1.85 billion.
The settlement was announced Thursday and could cancel student loans of tens of thousands of borrowers. The settlement includes $1.7 billion in debt cancellation and $95 million in restitution.
Minnesota Attorney General Keith Ellison was one of 39 state attorneys general involved in the settlement, which will include $14 million for Minnesota students.
“Navient put their own profits ahead of the interests of millions of families across our country who are struggling to repay student loans,” said Ellison in a news release. “Minnesota students and parents cannot afford to be cheated out of money simply because Navient knew how to game the system. Today, we held Navient accountable and will continue to protect Minnesotans against businesses that put their bottom line ahead of the interests of their customers and consumers.”
According to Ellison, the settlement resolves claims that since 2009, despite representing that it would help borrowers find the best repayment options for them, Navient steered them into costly long-term forbearances rather than providing advice on less costly repayment plans.
Forbearance is when lenders allow borrowers to pause or reduce payments for a limited time while they build back their finances. However, interest on the loan continues to accrue and can ultimately cause the amount paid over the life of the loan to be higher.
Navient denied acting illegally, and it did not admit to any wrongdoing under the settlement, which is subject to court approval.
“Navient is and has been continually focused on helping student loan borrowers understand and select the right payment options to fit their needs,” Chief Legal Officer Mark Heleen said in a statement.
In addition to forgiving tens of thousands of loans, Navient will pay $142.5 million, most of which will go to about 350,000 borrowers who were placed in long-term forbearances.
Also, Navient will be required to do more to advise borrowers of their options and explain repayment plans to them.
Massachusetts Attorney General Maura Healey called the settlement “an important step toward addressing our broken student loan repayment system.”
Borrowers whose loans are canceled will receive notice from Navient along with refunds of any payments made after mid-2021.