The Shopper Monetary Safety Bureau, led by director Rohit Chopra, this week reached a settlement with Navient after a seven-year authorized struggle over the corporate’s pupil mortgage administration practices.
Photo illustration by Justin Morrison/Inside Greater Ed | David Ake and Michael A. McCoy/Getty Pictures
Navient, an embattled pupil mortgage supplier, can pay again $100 million to pupil mortgage debtors after years of accusations that it mismanaged loans and misled debtors.
The corporate agreed to pay the restitution, on high of a $20 million penalty, as a part of a settlement reached with the Shopper Monetary Safety Bureau. It additionally agreed to just accept a everlasting ban on managing federal pupil loans.
The settlement, launched Thursday, brings an finish to one of many longest-running federal enforcement actions towards a serious monetary agency in U.S. historical past. The CFPB first sued Navient in January 2017—lower than every week earlier than former president Trump’s inauguration—alleging that the corporate steered debtors into forbearance, furnished pupil mortgage data to credit score businesses and “illegally failed debtors at each stage of compensation.”
CFPB enforcement director Eric Halperin informed Inside Greater Ed that the bureau agreed to the settlement quite than carry the case to trial as a result of it will bar Navient from future alternatives to handle federal loans and supply instant reduction to hundreds of pupil debtors.
“That is the end result of years of labor and quite a few efforts to rein in Navient and shield pupil debtors,” he mentioned.
Paul Hartwick, Navient’s vice chairman of company communications, wrote in an e mail to Inside Greater Ed that the corporate didn’t admit to any wrongdoing as a part of the settlement and that it outsourced the final of its federal mortgage portfolio earlier this yr.
“This settlement places these decade-old points behind us,” Hartwick wrote. “Whereas we don’t agree with the CFPB’s allegations, this decision is in line with our go-forward actions and is a crucial optimistic milestone in our transformation of the corporate.”
It’s not Navient’s first time paying to settle authorities claims of wrongdoing. In 2014, when it was nonetheless a subdivision of Sallie Mae, Navient paid $97 million after the Division of Justice accused it of violating a federal cap on rates of interest for army service members. And in 2022, it settled lawsuits introduced by 39 states for $1.85 billion; $1.7 billion went towards canceling excellent mortgage funds from debtors.
“For years, Navient’s high executives profited handsomely by exploiting college students and taxpayers,” CFPB director Rohit Chopra mentioned in a assertion Thursday. “By banning the infamous pupil mortgage big from federal pupil mortgage servicing and making certain the winddown of those operations, the CFPB will lastly put an finish to the years of abuse.”
A Lengthy Time Coming
Navient stopped servicing federal loans in 2021, when it started scaling again its function available in the market. However for years Navient serviced 12 million pupil loans, together with six million federal loans. That portfolio made it the biggest pupil mortgage servicer within the nation and an influential participant in federal pupil mortgage administration and coverage.
Mike Pierce, government director and co-founder of the Scholar Borrower Safety Heart, mentioned Thursday’s enforcement motion was “unimaginable” when the CFPB first introduced its case towards Navient in 2017.
“It’s arduous to overstate how dominant of a participant within the pupil mortgage system Navient was at the moment … each piece of the coed mortgage system ran by way of Navient headquarters in Delaware,” he mentioned. “The CFPB made a giant wager that you possibly can prosecute a giant public firm that dominated a market in a manner that might really win a measure of justice for debtors.”
Pierce mentioned the long-running enforcement effort towards Navient has had a chilling impact on profiteering from mortgage servicers, particularly below the Biden administration. Thursday’s settlement, he believes, units a precedent for even nearer scrutiny and stronger compliance measures.
“The marketplace for federal pupil mortgage contracting grew to become very concentrated over the previous 4 years,” he mentioned. “Navient bought out of the sport, and so did others … The businesses which might be going to be keen to boost their hand and win these huge authorities contracts are going to take action wanting over their shoulder, as a result of they know that regulators are watching.”
This yr, Navient transferred its remaining pupil mortgage portfolio—about 2.4 million loans—to the Greater Training Mortgage Authority of the State of Missouri, or MOHELA, a nonprofit group that’s additionally been the topic of controversy and authorities scrutiny. Final yr the Training Division fined MOHELA $7.2 million for billing errors that led to missed funds, and the American Federation of Lecturers sued the servicer in July for allegedly deceptive and misinforming debtors.
The injunctions issued towards Navient as a part of Thursday’s settlement will apply to the loans now at MOHELA, which Halperin mentioned provides extra accountability and protections for debtors sooner or later.
Pierce mentioned he anticipates scrutiny to ramp up on MOHELA as Navient’s saga involves a detailed. He additionally believes that non-public pupil mortgage servicers, over whom the CFPB has much less regulatory management however important oversight obligations, will likely be extra squarely in regulators’ crosshairs now; Senator Raphael Warnock, a Georgia Democrat, is chairing a listening to on the difficulty subsequent Tuesday.
Halperin didn’t expose any particulars on the CFPB’s present pupil mortgage oversight agenda, however he mentioned the bureau plans to proceed holding pupil mortgage servicers—each federal contractors and personal suppliers—to account.
“Scholar mortgage servicing is a market with a whole lot of threat for customers, each in federal and personal loans, and it’ll proceed to be a magnet for the bureau,” Halperin mentioned. “There’s nonetheless way more work to do.”
