Navient to face US student loan ban, pay $120 million to resolve CFPB lawsuit

10:55 am Thursday, September 12th, 2024

(Reuters) -A U.S. regulator on Thursday said it was banning Navient from servicing federal student loans, largely barring the company from a market it once led, and ordered the company to pay $120 million for years of student lending failures.

The U.S. Consumer Financial Protection Bureau said the ban would prevent Navient from servicing federal direct loans, and from directly servicing or acquiring most loans under the Federal Family Education Loan Program.

CFPB Director Rohit Chopra told reporters on Thursday his agency was “closing the book” on the company, which he described as one of the worst offenders in the student loan servicing industry “and a company that has harmed millions of borrowers across the country.”

The agency accused Navient of steering borrowers into delaying loan repayments even if they qualified for repayment plans based on their incomes, causing them to pay more in interest, because it was cheaper and simpler for the Herndon, Virginia-based company.

The CFPB also faulted Navient for making mistakes in processing payments, and misleading borrowers about their rights.

Navient said in a statement that the company disagreed with the CFPB’s allegations but was no longer a servicer or purchaser of federal student loans, having transferred its contract to a third party earlier this year. The company in July also began outsourcing the servicing of federally subsidized private loans.

“This agreement puts these decade-old issues behind us,” the statement said.

Thursday’s settlement would resolve a lawsuit filed by the CFPB in Scranton, Pennsylvania in January 2017, and requires a judge’s approval.

The payment includes $100 million in restitution for consumers, and a $20 million civil fine.

Formerly known as Sallie Mae, Navient had been the largest U.S. student loan servicer when the lawsuit began, handling more than $300 billion of federal and private student loans for over 12 million borrowers, the CFPB said.

(Reporting by Jonathan Stempel in New York and Douglas Gillison in Washington; Editing by Chizu Nomiyama and Franklin Paul)