(The Center Square) – Maine Attorney General Aaron Frey has reached a multi-million dollar settlement with the nation’s largest college loan servicing company to resolve claims of predatory lending and deceptive business practices.
The $1.85 billion settlement, which includes Maine and 38 other states, will resolve claims that Navient steered tens of thousands of struggling student loan borrowers into costly long-term forbearances instead of more affordable repayment plans.
Under the settlement, the company will be required to cancel $1.7 billion in subprime private student loan debt owed by nearly 66,000 borrowers and make $95 million in restitution payments to about 350,000 federal loan borrowers who were placed in certain types of long-term forbearance.
At least 1,157 Maine borrowers who took out federal loans will get about $308,422 in restitution, Frey said. Maine borrowers who took out private loans through the company will receive more than $4.8 million in loan cancellation.
Frey and other attorneys general said the interest that accrued because of Navient’s forbearance steering practices was added to the borrowers’ loan balances, pushing them further into debt. The company also issued subprime loans to college students that were “destined to fail” and added to the nation’s crushing student debt, they said.
In a statement, the company said it "expressly denies violating any law, including consumer-protection laws, or causing borrower harm.”
“The company’s decision to resolve these matters, which were based on unfounded claims, allows us to avoid the additional burden, expense, time and distraction to prevail in court,” Mark Heleen, Navient’s chief legal officer, said in the statement.
As part of the settlement, Navient will cancel loan balances of about 66,000 borrowers with qualifying private education loans that were issued between 2002 and 2010.
The company said it will begin notifying the affected borrowers and co-borrowers after the agreements receive final court approvals. Borrowers who qualify won't have to take any action to receive loan cancellation, the company said.
Student loan servers have come under increasing scrutiny from states and the federal government in recent years amid allegations of predatory lending that have contributed to a record level of student debt.
In 2009, the U.S. Department of Education’s inspector general began an investigation of Sallie Mae, Navient’s predecessor, over allegations that the student loan company had overcharged for student loan subsidies. The company was later ordered to repay $22 million to the federal government.
The Consumer Financial Protection Bureau sued Navient in 2017 in federal court over claims that its lending tactics inflated borrowers’ bills by billions of dollars.