Navient Student Loan Settlement: Details and Implications for Borrowers

Navient, a major student loan servicer, has been under scrutiny for its loan servicing practices. Created in 2014 after Sallie Mae separated its loan servicing and consumer banking businesses, Navient services both federal and private student loans, including a significant number of loans under the Direct Loan Program and some under the Federal Family Education Loan (FFEL) Program. Recent settlements have been reached to address allegations of unfair and deceptive practices.

Allegations of Misleading Practices

Despite promising to assist borrowers in finding the best repayment options to minimize interest costs, Navient was accused of deceptively steering distressed federal loan borrowers into costly long-term forbearances. It is alleged that Navient failed to inform borrowers about the benefits of income-driven repayment (IDR) plans, which could have offered more affordable payment options. Attorneys General in numerous states investigated Navient for these and other violations of consumer protection laws.

Key Components of the Settlement

The Navient settlement includes several key components designed to provide relief to affected borrowers and reform Navient’s conduct. These components include:

Federal Loan Forbearance Steering Restitution

Qualifying federal loan borrowers who were residents of specific states or had an address with a military postal code as of January 2017 are eligible for restitution. These borrowers received a check of approximately $260. It's important to note that not all Navient federal loan borrowers who entered forbearance are eligible for a payment. Eligibility criteria is based on having at least one federal student loan that was eligible for income-driven repayment between October 2009 and January 2017, but were instead steered into forbearance as a result of a phone call with a Navient customer service agent. The borrower must not have been in an income-driven repayment plan prior to that forbearance, and the forbearance must have lasted at least two consecutive years, with half of the forbearance being to postpone payments going forward, as opposed to a retroactive forbearance to bring a delinquent account current. The eligible states include AZ, CA, CO, CT, DC, DE, FL, GA, HI, IA, IL, IN, KY, LA, MA, MD, ME, MN, MO, NC, NE, NJ, NM, NV, NY, OH, OR, PA, TN, VA, WA, or WI.

Cancellation of Certain Subprime Private Loans

Certain private loan borrowers received a notice from Navient that their qualifying private loan has been cancelled. Additionally, credit bureaus were alerted to remove the loan’s tradeline. A tradeline includes information about a consumer account, such as the account balance, payment history, and the status of the account.

Read also: Understanding the Navient Case

The settlement agreement includes provisions for student loan forgiveness for certain Navient private student loans, specifically those issued by Navient to borrowers who attended certain for-profit educational institutions like DeVry. The loans must have been disbursed between 2002 and 2014, and the borrower must have been delinquent for at least seven billing cycles prior to June 30, 2021. Only loans that are still collectible under the applicable statute of limitations are eligible.

Conduct Reform

The settlement mandates that Navient reform its conduct and cease unfair and deceptive practices in servicing and collecting student loans. This includes ensuring that borrowers are fully informed about all available repayment options, including income-driven repayment plans, and that they are not steered into forbearance when other, more beneficial options are available.

CFPB's Role and Actions Against Navient

The Consumer Financial Protection Bureau (CFPB) played a significant role in addressing Navient's alleged misconduct. The CFPB filed a proposed order against Navient for its failures and lawbreaking over the years. If entered by the court, the proposed order would permanently ban the company from servicing federal Direct Loans and would forbid the company from directly servicing or acquiring most loans under the Federal Family Education Loan Program.

The CFPB's investigation revealed that Navient steered borrowers who may have qualified for income-driven repayment plans into forbearance instead. This practice was cheaper and simpler for Navient but detrimental to borrowers, leading numerous borrowers to pay additional interest charges.

Under the terms of the order, Navient would have to pay a $20 million penalty and provide $100 million in redress for harmed borrowers. The CFPB also alleged that Navient harmed student loan borrowers by:

Misleading borrowers about income-driven repayment plans.
Botching payment processing.
Harming the credit of disabled borrowers, including severely injured veterans.
Deceiving borrowers about Navient’s requirements for cosigner release.
Misleading borrowers about improving credit scores and the consequences of federal student loan rehabilitation.

Navient's Response

Navient has consistently denied any wrongdoing but agreed to the settlement to resolve the claims. A spokesperson for Navient stated that the agreement puts "these decade-old issues behind us."

Other Avenues for Relief

Beyond the Navient settlement, borrowers have several other avenues for potential student loan relief:

Income-Driven Repayment (IDR) Plans

Borrowers struggling to afford their federal student loan payments should consider applying for an income-driven repayment plan. Under income-driven plans, payments can be as low as $0 per month, with monthly payment amounts based on family size and income. The Revised Pay As You Earn (REPAYE) plan offers the most generous interest subsidy. Until at least July 31, 2022, Direct Loan borrowers could “self-certify” their income when applying for income-driven repayment or requesting recalculation of their payment amount, meaning that they could report their income without having to submit tax returns or alternative documentation of income.

Public Service Loan Forgiveness (PSLF)

Loan forgiveness is also available to some borrowers under the Public Service Loan Forgiveness (PSLF) program. Borrowers may also be eligible under the Temporary Expanded Public Service Loan Forgiveness (TEPSLF) Program even if their repayment plan doesn't qualify under regular PSLF. The Department of Education offered a PSLF “limited waiver opportunity” even if their loan type, repayment plan, or repayment history don't qualify under regular PSLF rules. Borrowers may need to consolidate into the Direct Loan program and/or file employment certifications by October 31, 2022, to benefit.

Borrower Defense to Repayment

Federal student loans are NOT eligible for CANCELLATION under the settlement. These borrowers may be eligible for Borrower Defense to Repayment. This is a federal student loan forgiveness program that can cancel the federal student loan debt for borrowers who were defrauded by their school.

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Department of Education Account Adjustment

The Department of Education is conducting a one-time adjustment to give borrowers with certain federal loan types qualifying months toward loan forgiveness under an income-driven repayment plan. Under this adjustment, borrowers can receive credit for all the months their loans have been in repayment and for certain forbearance and deferment periods. To benefit from potential forgiveness, borrowers must then enroll in, and stay in, an income-driven repayment plan. However, commercial FFELP loans must be consolidated into the Direct Loan Program to receive this credit.

Important Considerations for Borrowers

Consolidation: If you have a commercial FFELP loan, consider consolidating into the Direct Loan Program to receive credit toward loan forgiveness under the Department of Education’s account adjustment.
Contact Information: Ensure your contact information is up to date with your federal student loan servicer and StudentAid.gov to receive notifications about eligibility for relief.
Beware of Scams: Be cautious of scammers who may try to exploit the settlement by posing as CFPB employees or offering assistance for a fee. The CFPB will never require consumers to pay money to obtain redress or ask for additional information before cashing a redress check.
State-Level Advocates: Certain states have state-level student loan advocates who can help individual borrowers resolve complaints and explore their repayment options.

Understanding Your Loan Type

Your settlement options depend on whether your Navient loans are private or federal. Private loans allow for deeper discounts once they’ve defaulted. If you have private Navient student loans, only certain ones issued by Navient are considered for forgiveness under the settlement.

The End of COVID-19 Emergency Relief

The COVID-19 emergency relief for federal student loans ended in 2022. Borrowers need to be prepared to resume payments and should explore available repayment options.

Navient's Legacy and Future

Navient's contract with the Department of Education to service Direct Loans ended in 2021. In early 2024, Navient announced its intention to transfer the servicing of its remaining loans to another servicer. The CFPB’s order would ensure that Navient can never harm federal student loan borrowers at scale by getting back into the business of directly servicing federal student loans or growing its Federal Family Education Loan Program loan portfolio.

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