CFPB’s Blockbuster Enforcement Action Drove Biden-Harris Administration to Cancel $50 Billion in Student Loans for One Million Borrowers
September 12, 2024 | WASHINGTON, D.C. — Navient Corporation, the one-time student loan market leader, was permanently banned by its primary federal regulator, the Consumer Financial Protection Bureau (CFPB), from servicing any federal student loans and from buying additional federal student loan debt from other loan holders. This enforcement action ensures that Navient will no longer play an active role in the federal student loan system. CFPB’s action against Navient resolves a blockbuster lawsuit filed by the federal financial regulator seven years ago. In addition to these permanent bans, CFPB is requiring the firm to provide $100 million in restitution to borrowers and pay a civil penalty of $20 million.
The Bureau’s groundbreaking consumer protection case, CFPB v. Navient, alleged Navient abusively and systematically steered more than one million of its customers away from affordable loan repayment options like Income-Driven Repayment (IDR) and towards short-term “forbearances” that cost borrowers billions of dollars in unnecessary interest charges. The practice of “forbearance steering” first uncovered by the CFPB in this case led to Congressional hearings and drove state government enforcement actions and private lawsuits in courtrooms across the country. It also drove the Biden-Harris administration to implement a program called the IDR Account Adjustment that is now responsible for cancelling $50 billion in federal student loan debt for more than one million borrowers nationwide.
In response, Mike Pierce, Student Borrower Protection Center (SBPC) executive director and a former student loan official at the CFPB, released the following statement:
“During its decade-long reign as the nation’s dominant student loan firm, Navient and its executives engaged in stunning levels of abuse and fraud, causing widespread financial hardship for people with student debt. Navient’s abuses ruined lives and undermined public faith in the student loan system itself.
“The Bureau’s action resolves one of the longest-running lawsuits against a large financial firm in U.S. history. Today, borrowers cheated by Navient’s abusive student loan servicing practices can rest assured: this corrupt company will never cheat federal student loan borrowers out of their rights again.
“More than one million student loan borrowers across the country are already debt free because the career enforcement attorneys at the CFPB were unwilling to give Navient a pass on these abuses, even under significant political pressure to abandon this case during the Trump Administration. In the end, this will be remembered as one of the highest-impact public enforcement actions of this century—providing the evidence necessary for the Biden-Harris Administration to wipe away more than $50 billion in federal student loan debt, including debts owed by hundreds of thousands of working families caught up in Navient’s schemes.
“This case also offers a stark reminder to those current and former Navient customers who remain in debt: there are no saints in the student loan industry. These borrowers endured Navient’s abuses a decade ago only to be passed off to the architect of this decade’s hallmark student loan scandals, MOHELA. Today’s action shows that a committed regulator can win justice for borrowers and drive bad actors from the marketplace. Justice now demands that MOHELA receive the Navient treatment.”
SBPC Deputy Executive Director and Managing Counsel Persis Yu said the following:
“Today’s legal victory by the CFPB brings to a close one of the sordid chapters in the history of the student debt crisis. For decades, Navient’s abusive servicing practices kept borrowers from the promise of affordable repayment and trapped them in ballooning, neverending debt. Thanks to decisive action by the Biden-Harris Administration, millions of those borrowers are now debt free and millions more are closer to debt relief. Today’s settlement will ensure that Navient will never be able to hurt borrowers on the government’s dime again.
“Navient’s actions were emblematic of and a major contributor to today’s student debt crisis. But make no mistake: this crisis is not over and Navient was not alone. Borrowers are still in need of relief and servicers, like MOHELA, are still harming borrowers. We applaud the CFPB for ensuring true accountability and urge the Administration to similarly fire MOHELA.
“Earlier this year, Navient notified its shareholders that it planned to exit the student loan servicing market and intended to transfer millions of student loan borrower accounts to its one-time rival, the Missouri Higher Education Loan Authority (MOHELA). This account transfer is ongoing. Today’s enforcement action ensures that Navient can never participate in the federal student loan servicing market again.”
Background on Abusive and Illegal Student Loan Servicing by Navient
Navient’s nearly decade-long experience as a servicer on behalf of the U.S. Department of Education (ED) has been marked by failure, scandal, and unparalleled borrower harm. Nevertheless, during this time Navient has made its owners and executives rich, paying more than $4.9 billion to shareholders through dividends and stock buybacks and lavishing more than $47 million on its disgraced former CEO, Jack Remondi.
The attorneys general of Illinois, Washington, Pennsylvania, California, Mississippi, and New Jersey have all sued Navient for violating borrowers’ rights. State-level allegations against Navient include that it improperly reported permanently disabled borrowers as being in default on loans that should have been relieved, and that it trapped thousands of older people in debts they were entitled to escape under the terms of their loan contract by deceiving borrowers about their rights. In 2021, a broad, bipartisan coalition of 39 state attorneys general settled these charges, along with charges of predatory lending—cancelling nearly two billion dollars in predatory private student loans.
The company’s abuses are far-reaching and the financial consequences for borrowers are ongoing. Since 2011, tens of thousands of borrowers have filed complaints with Navient, the CFPB, and other government agencies about the obstacles they faced in repaying student loans that Navient services.
Navient’s track record of harm includes the following:
- Navient illegally overcharged nearly 78,000 servicemembers. In 2014, Navient and its predecessor Sallie Mae paid almost $100 million in restitution and fines after the Federal Deposit Insurance Corporation and U.S. Department of Justice found that the two companies ignored the 6 percent interest cap for servicemembers, unfairly conditioned receipt of Servicemembers Civil Relief Act benefits on made-up and difficult-to-attain qualifications, and deceptively allocated borrowers’ payments across loans in a way intended to maximize late fees. As law enforcement highlighted at the time, this happened even after Navient had “been put on notice of these borrowers’ active duty status.”
- Navient forced borrowers to pay more than they had to on their loans, adding up to $4 billion in avoidable interest charges. In 2017, the CFPB sued Navient for failing borrowers at every stage of repayment. The CFPB’s findings included that Navient had inappropriately and abusively placed struggling borrowers into high-cost repayment plans instead of more appropriate IDR plans that they are legally entitled to, costing borrowers as much as $4 billion in unnecessary interest charges and fees.
- Navient steered struggling borrowers to higher-cost repayment plans. In 2018, Senator Elizabeth Warren uncovered an audit of Navient conducted by ED, indicating that Navient boosted its profits by steering some borrowers into high-cost plans without discussing options that would have been less costly in the long run. In 2019, this finding was verified by the ED Inspector General, who reviewed documents prepared by Federal Student Aid showing that Navient representatives did not offer alternative or potentially beneficial options when attempting to assist borrowers with bringing their account current or managing repayment. Amid mounting litigation, three Congressional committees have launched inquiries into predatory loan servicing practices and efforts by Trump Administration officials to hide abuses by the student loan industry.
- Navient evaded financial accountability. In February 2021, Navient was ordered to pay ED back more than $22 million it had illegally taken from taxpayers by gaming an interest rate subsidy program.
Under the weight of these abuses, ED cut ties with Navient. Once the largest servicing company of student loans owned by ED, Navient no longer serves as one of the government’s student loan servicing contractors, transferring all student loans it once serviced to Maximus (also known as Aidvantage) in late 2021.
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About Student Borrower Protection Center
Student Borrower Protection Center (SBPC) is a nonprofit organization focused on eliminating the burden of student debt for millions of Americans. We engage in advocacy, policymaking, and litigation strategy to rein in industry abuses, protect borrowers’ rights, and advance racial and economic justice.
Learn more at protectborrowers.org or follow SBPC on Twitter @theSBPC.