(Bloomberg) -- Navient Corp. will be banned from servicing federal student loans and must pay $120 million under a proposed settlement with the Consumer Financial Protection Bureau.
An investigation found Navient steered student-loan borrowers into more expensive repayment options and deprived them from more affordable income-driven plans, the CFPB said in a statement Thursday. Navient will have to pay a $20 million penalty and $100 million to harmed borrowers.
The proposed settlement ends litigation originally filed by the CFPB in 2017 in the US District Court for the Middle District of Pennsylvania. At that time, Navient was the largest student-loan servicer in the US, handling more than 12 million borrowers, according to the CFPB. The company is no longer a purchaser or servicer of federal student loans after transferring its contract to a third party in 2021.
“While we do not agree with the CFPB’s allegations, this resolution is consistent with our go-forward activities and is an important positive milestone in our transformation of the company,” Navient said in a separate statement. Earlier this year, it agreed to outsource student-loan servicing of some legacy portfolios.
Shares of Navient climbed 4.4% to $15.30 at 10:46 a.m. in New York.
“For years, Navient’s top executives profited handsomely by exploiting students and taxpayers,” CFPB Director Rohit Chopra said in the agency’s statement. “By banning the notorious student-loan giant from federal student-loan servicing and ensuring the wind-down of these operations, the CFPB will finally put an end to the years of abuse.”
The CFPB’s investigation of Navient sparked state and federal efforts to examine forbearance steering and other breakdowns in the income-driven repayment program, it said. The deal would result in hundreds of thousands of consumers receiving redress, a CFPB official said on a press call.
Navient is a repeat offender, according to the CFPB. In 2022, the company reached a $1.85 billion settlement with 39 states and agreed to cancel about 66,000 student loans to resolve claims that the company used predatory lending practices.
The proposed settlement looks manageable for Navient, Bloomberg Intelligence analyst Elliott Stein said Thursday, with the total fine lower than he had expected and revenue impacts muted given that the firm already pivoted from relying on those lines of business.
(Updates with additional settlement details in third, eighth and 10th paragraphs.)
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