Navient Faces Major Penalties Over Controversial Student Loan Practices

A major student loan servicer faces a hefty settlement and permanent ban from federal student loans, marking a significant shift in the industry.

At a Glance

Navient banned from servicing federal student loans and ordered to pay $120 million.
Consumer Financial Protection Bureau (CFPB) accuses Navient of wide-ranging student lending failures.
Settlement includes $100 million in restitution and a $20 million civil fine.
Navient disagrees with allegations but views settlement as a “positive milestone.”

CFPB Takes Action Against Navient

The Consumer Financial Protection Bureau (CFPB) has taken decisive action against Navient, once the largest student loan servicer in the United States. The regulatory body has permanently banned Navient from servicing federal student loans and ordered the company to pay $120 million for alleged wide-ranging student lending failures. This landmark decision aims to address years of alleged misconduct and provide relief to hundreds of thousands of affected borrowers.

The ban prevents Navient from servicing federal direct loans and most loans under the Federal Family Education Loan Program. This action effectively removes Navient from a significant portion of the student loan market, where it once managed over $300 billion in loans for approximately 12 million borrowers.

Today, @CFPB is ordering @Navient to pay $120 million in refunds and penalties for its wide-ranging student loan servicing failures. More importantly, Navient, formerly known as Sallie Mae, will be banned from ever directly servicing federal student loans. https://t.co/NmMuALn1wO

— Rohit Chopra (@chopracfpb) September 12, 2024

Allegations and Settlement Details

The CFPB accused Navient of numerous violations, including steering borrowers into costly repayment plans, making payment processing mistakes, and misleading borrowers about various aspects of their loans. These actions allegedly resulted in higher interest payments and unnecessary financial burdens for borrowers.

“For years, Navient’s top executives profited handsomely by exploiting students and taxpayers,” said CFPB Director Rohit Chopra. “By banning the notorious student loan giant from federal student loan servicing and ensuring the winddown of these operations, the CFPB will finally put an end to the years of abuse.”

The $120 million settlement comprises $100 million in restitution for affected borrowers and a $20 million civil fine. This resolution comes after years of litigation, with the CFPB initially filing a lawsuit against Navient in January 2017 in Scranton, Pennsylvania.

Navient’s Response and Market Impact

Despite the severity of the allegations, Navient has maintained its disagreement with the CFPB’s claims. The company views the settlement as a positive step forward, stating that it “puts these decade-old issues behind us” and represents a “positive milestone in our transformation of the company.” Interestingly, Navient’s shares rose 6.2% to $15.57 in afternoon trading following the announcement, suggesting that investors may see this as a resolution to long-standing uncertainties.

“While we do not agree with the CFPB’s allegations, this resolution is consistent with our go-forward activities and is an important positive milestone in our transformation,” the Herndon, Virginia-based company said in a statement.

It’s worth noting that Navient had already transferred its federal student loan servicing contracts in 2021 and no longer services or purchases federal student loans. This settlement, therefore, appears to be the final chapter in Navient’s involvement with federal student loans.

Broader Implications for Student Loan Servicing

This action against Navient is part of a larger effort by regulatory bodies to address issues within the student loan servicing industry. The CFPB’s investigation has led to more than $50 billion in debt relief for over 1 million borrowers. U.S. Under Secretary of Education, James Kvaal, praised the CFPB’s actions, stating that it builds on the Biden-Harris Administration’s work to hold loan servicers accountable and protect borrowers.

For borrowers affected by Navient’s practices, the CFPB will be mailing checks for redress. The bureau has warned against potential scams and emphasized that borrowers do not need to take any action to receive compensation. This settlement, along with previous actions, signals a continued focus on reforming the student loan servicing industry and protecting borrower interests.