$19M In 'Predatory' Navient Student Loan Debt Canceled In CT: AG

CONNECTICUT — In what authorities are calling a landmark legal settlement, the student loan company Navient has been ordered to pay back more than $1.7 billion in debt cancelation nationwide for "abusive" practices.

In Connecticut, 1,339 borrowers will receive $19 million in direct private loan debt relief. Additionally, 4,875 borrowers will receive nearly $1.3 million in restitution. Connecticut will receive $141,240 in restitution to be deposited into the general fund., according to a joint statement from Attorney General William Tong, Consumer Protection Commissioner Michelle Seagull and Banking Commissioner Jorge Perez.

The lender engaged in deceptive forbearance practices which caused students to accrue massive interest, pushing borrowers, many of whom were struggling to barely get by, even further in debt, authorities said.

"Navient steered borrowers to costly payment plans, and away from reasonable and affordable options and programs. Their predatory loans left thousands of Connecticut families saddled with unaffordable debt. This settlement will send millions of dollars directly to thousands of Connecticut borrowers who were deceived by Navient’s abusive practices," said Attorney General William Tong.

According to the attorneys general, the interest that accrued because of Navient’s forbearance steering practices was added to the borrowers' loan balances, pushing borrowers further in debt.

Under the terms of the settlement, Navient will cancel the remaining balance on $1.7 billion in subprime private student loan balances owed by more than 66,000 borrowers nationwide. In addition, Navient will pay $142.5 million to the attorneys general. A total of $95 million in restitution payments of about $260 each will be distributed to approximately 350,000 federal loan borrowers who were placed in certain types of long-term forbearances.

Borrowers receiving private loan debt cancellation will receive a notice from Navient by July 2022, along with refunds of any payments made on the cancelled private loans after June 30, 2021. Federal loan borrowers who are eligible for a restitution payment of approximately $260 will receive a postcard in the mail from the settlement administrator later this spring.

Federal loan borrowers who qualify for relief under this settlement do not need to take any action except update or create their studentaid.gov account to ensure that the U.S. Department of Education has their current address, according to the statement from Tong's Office.

Until recently, Navient had a contract to service federal student loans owned by the U.S. Department of Education, including a large portfolio of loans made under the Direct Loan Program and a smaller portfolio of loans made under the Federal Family Education Loan program. On Oct. 20, 2021, the U.S. Department of Education announced the transfer of this contract from Navient to Aidvantage, a division of Maximus Federal Services, Inc. However, Navient will continue to service federal student loans made under the FFEL Program that are owned by private lenders, as well as non-federal private student loans.

The settlement includes conduct reforms that require Navient to explain the benefits of income-driven repayment plans and to offer to estimate income-driven payment amounts before placing borrowers into optional forbearances. Additionally, Navient must train specialists who will advise distressed borrowers concerning alternative repayment options and counsel public service workers concerning Public Service Loan Forgiveness and related programs. The conduct reforms imposed by the settlement include prohibitions on compensating customer service agents in a manner that incentivizes them to minimize time spent counseling borrowers.

Other states that joined on to the settlement were Arizona, Arkansas, Colorado, the District of Columbia, Delaware, Florida, Georgia, Hawaii, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Michigan, Minnesota, Missouri, Nebraska, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Vermont, Virginia, West Virginia and Wisconsin.