Navient will repay Mass. student borrowers $43.2m
Healey announces 39-state, $1.85b settlement with lender
MASSACHUSETTS STUDENT loan borrowers whose private loans were serviced by Navient will get $41 million of those loans forgiven, under a national settlement announced Thursday by Attorney General Maura Healey.
The $41 million will go to 1,523 borrowers who obtained private loans through Navient, providing relief that Healey said could be tens of thousands of dollars for some borrowers. Massachusetts will also get another $6 million in the settlement, including $2.2 million to provide restitution to another 8,300 borrowers with federal student loans. The restitution will amount to around $260 per person.
Borrowers who have their loans cancelled or are eligible for restitution will be notified by mail.
The agreement is part of a $1.85 billion national settlement between one of the country’s largest student loan servicing companies and 39 states. The state attorneys general alleged that Navient failed to help financially stressed borrowers repay their debt and instead lured them into forbearance programs, which temporarily paused their payments while their interest accumulated, increasing their debt.
According to Healey’s office, Navient had the option of steering borrowers toward income-driven plans that would have reduced payments, potentially to zero, while providing interest subsidies and possibly qualifying borrowers for loan forgiveness in 20 to 25 years, or 10 years if the borrower was in public service. Instead, the company recommended forbearance plans, where borrowers did not have to pay for a period, but interest on the loans accrued, driving them deeper into debt.
The agency also issued risky subprime private student loans, knowing that students would be unlikely to be able to repay them.
Healey, at a press conference, called Navient’s conduct “deceptive” and said its failures “harmed borrowers” from all walks of life. “Student borrowers who are already in financial distress ended up on the hook for millions more on their loans,” she said.
“For many borrowers, the results of this settlement will be life-changing,” Healey added.
The core of the allegations are that Navient violated the state’s consumer protection law by engaging in unfair and deceptive practices.
“We allege Navient lied to students,” student loan ombudsperson Arwen Thoman said.
In addition to having to forgive loans and pay restitution, Navient will have to reform its behaviors going forward. The agency will have to explain to borrowers their options for income-driven repayment plans before placing them in forbearance. It will have to train specialists to advise borrowers on student loan forgiveness plans and repayment options. The settlement prohibits compensation methods for customer service agents that disincentivize them to counsel borrowers. The agency will have to eliminate some fees that it charges borrowers, and provide clear billing statements and payment histories.
The settlement, filed in Suffolk Superior Court, will require court approval.
US Sen. Elizabeth Warren, who has previously criticized Navient’s behavior, issued a statement commending Healey for reaching the settlement. “Navient cheated students who borrowed money to pursue their dreams and allowed them to be crushed by avoidable debt, all while the US Department of Education turned a blind eye,” Warren said.
A student loan ombudsperson’s position was created in Healey’s office in July, under legislation that created a new licensing system for student loan servicers. In its first six months operating, Thoman, the ombudsperson, received 116 complaints against student loan servicers, of which 36 percent were against Navient.
Healey said of her office’s student loan assistance unit, “every day they hear from borrowers trapped in mounting debt because Navient and others fail to counsel them about how to repay loans.”
Two student loan borrowers participated in the call. Kelly Feeherry attended the now-shuttered New England Institute of Art, where she said the school promised to get her federal loans, but then took out private, variable loans, leaving her with few skills upon graduation and “outrageous lifelong debt.” She said loan forgiveness will let her regain her credit and purchase her and her husband’s first house.Another borrower, Heleena Moon, took out a loan to attend Howard University, then graduated during the recession, could not find a job, and was put in forbearance without understanding that her interest was still accruing and increasing her loan balance by thousands of dollars.
On the call, Healey only took questions on the topic of the settlement and did not address her consideration of a run for governor.