Navient, once one of the country’s largest student loan servicing companies, reached a $1.85 billion deal with 39 states to settle claims that it had made predatory student loans that saddled millions of borrowers with billions of dollars in debt that they were highly unlikely to repay.
The deal, announced Thursday, requires Navient to cancel $1.7 billion in private student loan debts for nearly 66,000 borrowers and pay $95 million in restitution.
“Navient repeatedly and deliberately put profits ahead of its borrowers — it engaged in deceptive and abusive practices, targeted students who it knew would struggle to pay loans back, and placed an unfair burden on people trying to improve their lives through education,” said Josh Shapiro, the attorney general of Pennsylvania, one of several states that had sued Navient.
The settlement corrects Navient’s past behavior, provides relief to borrowers and establishes safeguards to ensure that such behavior does not recur, Mr. Shapiro said in a statement.
Navient, which did not admit any fault in the settlement, said it did not act illegally.
“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,” said Mark Heleen, Navient’s chief legal officer.
The deal ends a major portion of a set of linked legal actions that began five years ago, when federal and state prosecutors sued the company that was then at the heart of the student debt collection system.
The Consumer Financial Protection Bureau sued in federal court over what it called mistakes and tactics by Navient that inflated borrowers’ bills by billions of dollars. Several state attorneys general also filed state lawsuits claiming that Sallie Mae — Navient’s predecessor company, from which it split off in 2014 — made private, subprime loans to borrowers it knew were likely to default.
Those claims are the focus of Thursday’s settlement, but it also resolved the states’ charges that Navient inflated borrowers’ bills by steering federal loan borrowers into costly long-term forbearances instead of guiding them toward more affordable income-based repayment plans. The consumer bureau’s lawsuit, which centers on those claims, is continuing.