Federal authorities prohibit Navient from handling federal student loan obligations.
The dispute with the Consumer Financial Protection Bureau, initiated in 2017, was concluded through a settlement. The lawsuit accused Navient of deceiving student loan borrowers and handling their payments incorrectly.
At that time, Navient, formerly a division of Sallie Mae's loan servicing department, was one of the most significant firms handling federal student loans for the Department of Education.
In 2021, the troubled loan management firm relinquished its contract with the government and its 6 million federal student loan accounts, having faced multiple legal and disciplinary actions.
Navient reached a $1.85 billion settlement with several state attorneys general in 2022, who alleged unethical practices. Previously, in 2014, the Department of Justice and the Federal Deposit Insurance Corporation had ordered Navient and Sallie Mae to reimburse nearly $100 million due to illegally overcharging approximately 78,000 military service members.
As part of the recently announced settlement, $100 million will be given to affected borrowers, who will receive compensation directly from the CFPB. Affected borrowers do not need to take any further steps. Navient will also pay a $20 million fine to the federal agency.
"With the ban on the infamous student loan giant from federal student loan servicing and the winding down of these operations, the CFPB will bring an end to years of mistreatment," CFPB Director Rohit Chopra noted in a statement.
Navient, in a press release, stated that it disagrees with the CFPB's accusations but that the agreement "puts these decade-old issues to rest."
Biden has offered debt relief to certain Navient borrowers
The lawsuit from the CFPB primarily focused on criticism of how numerous student loan servicers placed borrowers into forbearance when they were eligible for an income-driven repayment plan that lowers their monthly payments.
No payments are needed while a loan is in forbearance, but interest continues to accumulate, which can result in additional expenses over time.
Several initiatives from the Biden administration to cancel student loan debt have targeted borrowers who were put into forbearance when a better repayment alternative was feasible. Currently, this has resulted in $51 billion of debt relief for 1 million borrowers, according to the Department of Education.
Forbearance cannot be granted for more than 12 months at a time or for a total of 36 months, but the Department of Education has discovered that loan servicers do not always comply with this guideline.
Navient's ongoing issues with the Consumer Financial Protection Bureau are deeply rooted in politics, as the company has faced numerous legal actions and disciplinary measures for allegedly deceiving student loan borrowers and handling their payments incorrectly.
The settlement with Navient in 2022, led by several state attorneys general, was a significant political move, highlighting the government's commitment to protecting student loan borrowers from unethical practices.
