A former unit of student loan giant Sallie Mae said it would write off $ 1.7 billion in private student debt for about 66,000 borrowers to resolve allegations that they were engaging in misleading lending practices.
, a student loan provider that split from Sallie Mae in 2014, agreed to the sum in a settlement with 40 state attorneys. The loans are private loans, so the losses will be covered by Navient’s investors instead of the federal government.
Almost all of the canceled loans arose with Sallie Mae from 2002 to 2010, at a time when student debt increased, on its way to becoming the second highest form of household credit after mortgages. Sallie Mae was at the forefront of that boom, both as the largest originator of private loans, as well as the largest lender under a federal program that guaranteed student loans.
The loans went primarily to borrowers with bad credit, and who went to schools with shaky records, including many for-profit schools, according to a website run by the settlement administrator. All the loans that were forgiven in the agreement were in default.
“For too long, Navient has contributed to the national student debt crisis by misleading thousands of students into more debt,”[ads1]; said New York State Attorney Letitia James.
As part of the agreement, Navient continued to reject the allegations or that the company has harmed any borrowers. “The company’s decision to resolve these cases, which were based on unfounded allegations, allows us to avoid the additional burden, expense, time and distraction that prevail in court,” said Mark Heleen, Navient’s legal counsel.
Navient has faced a number of lawsuits in recent years alleging that the company had engaged in unfair and misleading behavior towards borrowers, including directing those with federal loans against plans that would allow them to stop paying, but where interest continued to accrue, in instead of against plans in which monthly payments are linked to the borrowers’ income.
In March last year, a judge in the Seattle area ruled that the company had violated a law on consumer protection in a case brought by Washington’s attorney general.
“Navient repeatedly and deliberately put profits in front of its borrowers – engaging in deceptive and abusive practices, targeting students it knew would struggle to repay loans and placing an unfair burden on people trying to improve their lives through education,” he said. Attorney General of Pennsylvania. in Josh Shapiro.
Lindsay Clark is hopeful that the settlement will apply to her.
Mrs. Clark, 32, who works in Washington, DC, says she accumulated about $ 100,000 in student loans while taking an undergraduate degree from Yale University and a master’s degree from Columbia University, where she studied international affairs. Her debt has since increased to $ 206,000 after she repeatedly took out her loans, which limited her monthly payments while raising interest rates.
She said she was gullible when it came to her student debt, but accused Navient of directing her toward the tolerance plan without fully informing her of the consequences.
When she heard about the settlement, she was first elated.
“I thought well, they are finally being tried,” she said.
The agreements resolve all six outstanding state lawsuits against Navient, the company said. As part of the settlement, the company will make a one-time payment of approximately $ 145 million to the states.
In addition to the cancellation of loans and some repayment for borrowers with private loans, Navient will pay $ 95 million to about $ 350,000 federal borrowers – or about $ 260 each – that were placed in certain types of tolerance programs that caused them to accumulate more debt. instead of going into income-based repayment plans, states said.
States will distribute compensation to borrowers within their jurisdictions. Massachusetts, for example, will receive more than $ 6 million, including $ 2.2 million in restitution for more than 8,300 federal borrowers, said Attorney General Maura Healey.
Borrowers of federal loans eligible for repayment will be notified by mail this spring, with checks expiring in the middle of the year, according to the settlement administrator’s website. Private borrowers who qualify for printing will be notified by July.
Private loans without federal support make up less than 10% of the total $ 1.7 trillion student loan industry. Around 43 million people owe 1.6 trillion dollars in federal student debt, according to data from the Ministry of Education. Approximately 5.2 million of these federal borrowers are in default. These borrowers, unless they also had private student loans, are not affected by Thursday’s settlement.
Navient recently announced its exit from federal student loan processing. It had been one of the primary federal contractors, earning around six million borrowers. The accounts were transferred to a new contractor, Maximus, whose role was approved by the education department.
The Ministry of Education has also taken steps to forgive billions in debt held by disabled borrowers, as well as borrowers who went to institutions such as federal regulators say practiced misleading recruitment practices, such as the ITT Technical Institute. The piecemeal moves have resulted in $ 11.5 billion in canceled debt for around 600,000 borrowers during President Biden’s first year in office. Disbursements of student loans have been suspended by the government during the pandemic, with the latest extension now expiring on 1 May.
The Biden administration is in the process of restructuring its student loan processing system. In November, it announced that it was ending relations with private debt collection agencies that had been tasked with recovering payments from federal student loans that defaulted to improve collections and provide borrowers with more support.
The Consumer Financial Protection Bureau has been suing Navient since 2017 for allegations that it directed borrowers to defer payments instead of entering into more affordable, income-driven repayment plans. The CFPB has said the practice costs borrowers $ 4 billion in interest expenses. Navient has disputed the authorities’ allegations.
—Melissa Korn contributed to this article.
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