Navient reaches $1.85 billion settlement with states on predatory student loan practices By Reuters

© Reuters. FILE PHOTO: Signage is seen on the offices of Navient in Wilmington, Delaware, U.S., June 9, 2021. REUTERS/Andrew Kelly/File Photo

By Jonathan Stempel and Chris Prentice

(Reuters) -Navient Corp, one of the largest U.S. student loan companies, has reached a $1.85 billion settlement with most U.S. states to resolve accusations it made predatory student loans and steered struggling borrowers into costly repayment plans.

The accord with 38 U.S. states and Washington, D.C. requires Navient (NASDAQ:) to cancel $1.7 billion of student debt, and resolves probes and lawsuits into practices dating back to 2009, when the company was known as Sallie Mae.

In agreeing to settle, Navient denied breaking any laws or causing harm to borrowers, saying the matter was “based on unfounded claims.”

The states accused Wilmington, Delaware-based Navient of steering borrowers into high-cost loans it knew they might have trouble repaying.

Navient was also accused of encouraging borrowers to postpone payments, known as forbearance, instead of counseling them about low-cost repayment plans tied to their incomes.

The states said Navient used these practices to induce colleges and universities to include the company on their lists of “preferred” lenders for making profitable federal and “prime” private loans.

At a press conference, Pennsylvania Attorney General Josh Shapiro, who said he is still paying off his own student loans, said Navient’s practices impeded thousands of borrowers from buying homes, starting businesses and raising families.

“Navient knew that people relied on their loans to make a better life for themselves and for their children,” he said. “Instead of helping them, they ran a multibillion dollar scam.”

The company will cancel about $1.7 billion of subprime loan balances for about 66,000 borrowers, and will make $95 million in restitution payments of about $260 apiece to more than 350,000 borrowers who were placed in long-term forbearances.

Navient estimated it will pay $145 million to the states, including to reimburse their costs.

In a statement, Navient Chief Legal Officer Mark Heleen said the settlement would spare the company the time, cost and distraction of further litigation.

Sallie Mae in 2014 split off Navient from its private education lending business, which is now known as SLM (NASDAQ:) Corp.

In afternoon trading, Navient shares were up 1.4%, at $22.21 by 12:42 p.m. EST (1742 GMT).

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