Thousands of Pennsylvania student loan borrowers will receive restitution or debt cancellation after loan servicer Navient paid $1.85 billion to settle a nationwide lawsuit.

Approximately 13,000 borrowers in Pennsylvania will receive $3.5 million in restitution payments, and 2,467 more will receive $67 million in student debt cancellation as a result of a settlement with student loan servicer Navient, Attorney General Josh Shapiro said Thursday.

Navient will pay $1.85 billion to resolve allegations of “widespread unfair, deceptive and abusive student loan servicing practices,” Shapiro explained at a news conference broadcast from Drexel University in Philadelphia.

The lawsuit was joined by 39 other state attorneys general across the country.

As a result of the settlement, Navient will cancel remaining balances on more than $1.7 billion in subprime private student loans owed by 66,000 borrowers nationwide. The company also will pay $95 million in restitution payments of about $260 each to 350,000 federal loan borrowers who were placed in certain long-term forbearances.

“Navient repeatedly and deliberately put profits ahead of its borrowers – it 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,” Shapiro said. “Today’s settlement corrects Navient’s past behavior, provides much needed relief to Pennsylvania borrowers and puts in place safeguards to ensure this company never preys on student loan borrowers again.”

Two schemes

The investigation found Navient engaged in two primary “schemes,” Shapiro said: that of issuing subprime private loans that they knew borrowers could not pay back easily, and that of misleading borrowers into forbearances that accumulated more debt.

“(Subprime private loans) were a similar type of loans that were used that led to the mortgage crisis back in 2008,” Shapiro said. “These loans were issued with large fees and exorbitant interest rates, and most of these loans defaulted. This practice left borrowers with mountains of debt crushing their chances for future credit.”

Shapiro said Navient incentivized employees to push forbearances instead of an income-driven repayment option, which would have allowed borrowers to keep paying off their loans instead of racking up interest.

“The people wronged by these practices were everyday Pennsylvanians trying to make their lives just a little bit better by getting an education,” Shapiro said. “Instead, Navient misled them and broke the law to boost their own bottom line.”

In a statement, Navient said it “expressly denies violating any law, including consumer-protection laws or causing borrower harm.”

“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 statement. “Navient is and has been continually focused on helping student loan borrowers understand and select the right payment options to fit their needs. 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.”

Future changes

Shapiro said more needs to be done on the broad issue of student debt, but that the settlement would provide “real and meaningful relief” for struggling borrowers.

“Despite the ongoing pause that exist for payments on federal student loans, many borrowers are looking for more from Washington, D.C., looking for more solutions to the mounting student debt crisis,” Shapiro said. “As it stands right now, the average college graduate in Pennsylvania owes more than $39,000 in student debt, the second highest in the nation.”

Navient will also be required to make three specific conduct changes moving forward, Shapiro said. The company must train specialists to assist distressed borrowers on alternative repayment options, and counsel them on loan forgiveness plans. Navient’s customer service representatives must also go through income-driven repayment options and offer an estimate on payment before putting borrowers into forbearance. Navient also may no longer incentivize its employees to rush through calls or skip details about compensation incentives in calls.

Those who are eligible for relief through the settlement do not have to do anything to get their money, Shapiro said. If borrowers have federal loans, Shapiro recommended making sure the Department of Education has their current address. Borrowers receiving private loan cancellation will receive notices from Navient by July, along with refunds of any payments made on the canceled private loans after June 30, 2021. Federal loan borrowers eligible for restitution will receive postcard notices of what they’ll get through the settlement this spring.