Navient, once a giant in the student loan servicing industry, has been permanently banned from servicing federal student loans and ordered to pay $120 million in a settlement with the Consumer Financial Protection Bureau (CFPB). This agreement marks the conclusion of a long-standing lawsuit that accused the company of misleading borrowers and mishandling payments, leading to significant financial harm for millions of students.
The CFPB's lawsuit, initiated in 2017 during the Obama administration, alleged that Navient steered borrowers into costly repayment plans, failed to apply payments correctly, and provided inaccurate information that led to higher loan balances and prolonged debt. Despite these serious allegations, Navient consistently denied any wrongdoing throughout the litigation process. However, the company ultimately agreed to the settlement to move past the "decade-old issues," according to a statement released by Navient.
As part of the settlement, Navient will pay $100 million in compensation to affected borrowers, who will automatically receive checks from the CFPB. Additionally, the company will pay a $20 million penalty to the federal agency. The CFPB's Director, Rohit Chopra, emphasized the significance of this outcome, stating, "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."
Navient's fall from grace has been a long time coming. Once a dominant player in the student loan industry, the company was initially spun off from Sallie Mae in 2014 and managed millions of federal student loans. However, its reputation suffered as multiple lawsuits and investigations revealed widespread malpractice, including overcharging military service members and steering borrowers away from income-driven repayment plans that could have reduced their financial burden.
The settlement is not the first time Navient has faced significant legal consequences. In 2022, the company agreed to a $1.85 billion settlement with several state attorneys general over similar allegations of unfair practices. Additionally, in 2014, the Department of Justice and the Federal Deposit Insurance Corporation ordered Navient and Sallie Mae to pay nearly $100 million for illegally overcharging nearly 78,000 military personnel.
The CFPB's case against Navient also played a pivotal role in shaping federal oversight of the student loan servicing industry. The lawsuit, which spanned three presidential administrations, highlighted the challenges in regulating companies that manage the federal government's $1.5 trillion student debt portfolio. The case drew attention to the conflicts between the CFPB and the Department of Education, particularly during the Trump administration, when the Education Department declined to provide records needed to prosecute Navient. Despite this, the CFPB prevailed in court, securing a critical ruling in its favor.
Navient's downfall has also had broader implications for the student loan industry. The Biden administration, for example, has used the findings from the CFPB's investigation to justify parts of its sweeping student loan forgiveness initiatives. To date, the administration has provided $51 billion in debt relief to approximately one million borrowers, many of whom were affected by servicers like Navient.
Mike Pierce, Executive Director of the Student Borrower Protection Center and a former CFPB official, described the case as "one of the highest-impact public enforcement actions of this century." He praised the settlement, noting that it demonstrates the power of committed regulation to "win justice for borrowers and drive bad actors from the marketplace."
