The company will also pay more than $140 million in penalties in deal to settle claims by attorneys general of 39 states.
The student loan servicing provider Navient reached a deal to cancel $1.7 billion in delinquent private student loans belonging to more than 66,000 borrowers. The company will also pay more than $140 million in penalties in the agreement to settle claims by the attorneys general of 39 states.
The lawsuit alleged that Navient misled borrowers by encouraging them to enter into long-term forbearance agreements that increased their debt. The forbearances meant that borrowers paused their payments, but the interest accrued on the debt caused the amount paid over the life of the loan to increase.
According to the Associated Press, the company "engaged in deceptive and abusive practices, targeted students who it knew would struggle to pay loans back, and placed an unfair burden on people trying to improve their lives through education," per one of the suit's filers and subsequent negotiators, Josh Shapiro, Pennsylvania attorney general.
The lawsuit also alleged that Navient provided the loans to students of schools with lower graduation rates, virtually ensuring that borrowers would struggle to repay them. Additionally, Navient reportedly encouraged borrowers to enter the forbearances instead of enrolling in income-based repayment programs.
The proposed settlement cancels past-due loans made in 2002 and after to borrowers attending selected for-profit schools - including the now-defunct ITT and Corinthian Colleges, plus Bridgepoint Education, DeVry University and Education Management Corporation - or entering certain Navient programs.
Per CNN, approximately 350,000 federal student loan borrowers will receive $95 million in restitution while 66,000 borrowers of private debt will see their remaining balances canceled.
The cancellation will only apply to people with private student loan debt who will be notified by July 2022, and get refunds on payments made after June 30, 2021, according to CNBC.
In settling the lawsuit, Navient denied any wrongdoing. "The company's decision to resolve these matters, which were based on unfounded claims, allows us to avoid the additional burden, expense, time and distraction to prevail in court," said Navient's Chief Legal Officer Mark Heleen in a press release.
"Navient is and has been continually focused on helping student loan borrowers understand and select the right payment options to fit their needs," he maintained. "In fact, we've driven up income-driven repayment plan enrollment and driven down default rates, and every year, hundreds of thousands of borrowers we support successfully pay off their student loans."
Mike Pierce of the Student Borrower Protection Center, a nonprofit organization focused on alleviating the burden of student debt for millions of Americans, said of the settlement Thursday that "Today's action is a clear victory for many of the millions of borrowers whose pain Navient and Sallie Mae shamelessly turned into profit."
"Navient cheated borrowers at every stage of repayment, taking advantage of low-income borrowers, disabled veterans, seniors, and more, all in service to its bottom line," Pierce added. "Today, these 39 states won a hard-fought battle to remedy this long history of abuse."
Accroding to the Education Data Initiative, Approximately 42.9 million Americans with federal student loan debt each owe an average of $37,105 for those loans.
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