BOSTON – Navient, a major student loan collection company, has agreed to forgive $1.7 billion in debt owed by more than 66,000 borrowers across the United States and pay more than $140 million in other penalties to address allegations of abusive lending practices.
The settlement with 39 state attorneys general was announced Thursday.
Navient “engaged in deceptive and abusive practices, targeted students it knew would struggle to repay their loans, and placed an unfair burden on people trying to improve their lives through education” said Pennsylvania Attorney General Josh Shapiro, who helped lead the negotiations. in a report.
Among other things, he said, Navient tricked borrowers who were struggling to make payments into entering what are known as long-term forbearances, causing them to indebted even more.
Forbearance occurs when lenders allow borrowers to suspend or reduce payments for a limited time while they rebuild their finances. However, interest on the loan continues to accrue and may eventually result in an increase in the amount paid over the life of the loan.
Navient has denied acting illegally and has not admitted any wrongdoing in the settlement, which is subject to court approval.
“Navient is and has always been focused on helping student borrowers understand and select the right payment options to meet their needs,” Chief Legal Officer Mark Heleen said in a statement.
Along with canceling tens of thousands of loans, Navient will pay $142.5 million, most of which will go to about 350,000 borrowers who have been placed in long-term forbearances.
Additionally, Navient will need to do more to inform borrowers of their options and explain repayment plans.
Massachusetts Attorney General Maura Healey called the settlement “an important step toward solving our broken student loan repayment system.”
Among those who will benefit is Ashley Hardin, 38, of Seattle. Hardin defaulted on about $108,000 in private student debt in 2020 after scrambling for more than a decade trying to repay a loan she used to attend the Brooks Institute of Photography in California.
His monthly payments were often higher than his rent. For a time, Navient agreed to reduce her payments to around $650 per month, but by the end of that period she again owed more than $1,000, having to pay compound interest.
“It’s a huge weight lifted,” said Hardin, who was unable to pursue a career in photography in Seattle and now runs a food truck with her husband. “I can breathe again and feel like I’m not drowning, like I’m not going to get a call tomorrow that they’re suing me for misconduct.”
Helena Moon, 34, was accepted into her “dream college” – Howard University – when she was 18. When financial aid and scholarships weren’t enough, she sought out private loans and found herself beset by phone calls and letters from lenders after graduating. . Moon, who lives in Washington DC, said the experience was also stressful for her mother, who co-signed the loans.
“It’s a step towards racial equality when you think about the percentage of African Americans in debt in this country,” she said of the settlement.
Kelly Feeherry, 34, of Franklin, Massachusetts, described her experience using loans to attend art school as a “living nightmare” that threatened to burden her with lifelong debt.
“What the settlement will mean for me is that I can finally get my credit back,” she said.
Borrowers whose loans are canceled will receive notice from Navient along with a refund of any payments made after mid-2021.
The settlement also includes Arizona, Arkansas, California, Colorado, Connecticut, District of Columbia, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Michigan, Minnesota, Missouri and Nebraska. , Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio, Oregon, Rhode Island, South Carolina, Tennessee, Vermont, Virginia, Washington, West Virginia and Wisconsin.
AP writer Gene Johnson contributed from Seattle.