Navient, once the largest student loan servicer in the United States, is facing a permanent ban from servicing Direct Loans and other financial aid programs as the result of a lawsuit from the Consumer Financial Protection Bureau (CFPB).

The order also imposes $120 million in penalties, with $100 million allocated to redress for borrowers and an additional $20 million in fines.

The CFPB’s lawsuit, which began in 2017, accused Navient of numerous illegal practices, including steering borrowers into costly forbearance instead of income-driven repayment plans (IDR), which could have significantly reduced their payments. By prioritizing forbearance, Navient allowed interest to accrue, leading many borrowers to pay more in interest charges than they would have under IDR plans.

The proposed settlement, if approved by the court, will ensure that Navient is effectively removed from managing federal student loans.

Navient Lawsuit

The lawsuit highlights that Navient misled borrowers about the benefits of income-driven repayment plans and failed to inform them of the need to re-certify annually, often resulting in higher monthly payments. 

The company also made numerous processing errors, including misapplying payments and harming the credit scores of disabled borrowers. A 2022 settlement with 39 state attorneys general further highlighted the company’s illegal practices, including originating predatory student loans.

While Navient will still manage some FFELP loans, the ruling prohibits it from acquiring new loans or conducting direct servicing activities for FFELP loans. Additionally, Navient must adhere to strict requirements to protect borrower rights, including ensuring proper access to affordable repayment options.

Impact To Student Loan Borrowers

The order also requires Navient to:

• Pay $100 million redress to consumers: Navient will be required to provide $100 million in redress for affected consumers.
• Pay a $20 million penalty: Navient will pay $20 million into the CFPB’s victims relief fund.

While it’s not clear how the funds would be disbursed to consumers harmed by Navient, this is a win for borrowers who have been struggling with their loans as a result of loan servicing issues.

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