Navient, one of the nation's largest student loan companies, will provide $1.85 billion in relief to borrowers to settle claims the company steered them away from favorable repayment plans as part of a multistate agreement announced Thursday.
The settlement involves 39 states, including Delaware. It will affect 66,000 borrowers nationwide, who will receive relief in the form of restitution payments or private loan forgiveness.
More than 1,500 Delaware borrowers will receive a payment of around $260. In addition, 145 Delaware borrowers will have a combined $4.8 million in private loan debt canceled.
"Addressing the student loan crisis is one of my biggest consumer protection priorities," Delaware Attorney General Kathy Jennings said in a statement. "We have to recognize that even when the playing field is level, student borrowers are fighting an uphill battle. Between rising tuition and a generation of teenagers who were told that a four-year degree was vital to their success, student debt has become a crisis.
"At a minimum, loan servicers should be expected to follow the law."
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Navient, which is headquartered along the Wilmington Riverfront, denies all of the charges against the company. In a statement, the company said the decision to settle was purely a financial decision. The costs to settle are "substantially lower" than the costs of ongoing state-by-state litigation.
"Navient is and has been continually focused on helping student loan borrowers understand and select the right payment options to fit their needs," Navient Chief Legal Officer Mark Heleen said in a statement.
Led by Pennsylvania, Washington, Illinois, Massachusetts and California, a multistate investigation alleged Navient steered borrowers into expensive forbearances rather than directing them to lower-costs alternatives such as income-driven repayment plans or public service loan forgiveness.
The attorneys general said the interest accrued because of Navient's forbearance-steering practices added to borrowers' loan balances, pushing them further into debt.
They also allege Navient originated subprime loans for students attending for-profit colleges with low graduation rates. These "risky" loans were made to get schools to use Navient as a preferred lender, the attorneys general said.
The settlement requires Navient to explain the benefits of income-driven repayment plans and to offer estimated payment amounts before placing borrowers into optional forbearances.
The company must have specialists who advise distressed borrowers. Those specialists can not have incentive structures that encourage them to minimize time spent counseling borrowers.
A Navient spokesperson said these practices were implemented years ago.
Those who will have private loan debt canceled will be notified by Navient no later than July 2022. Borrowers who are eligible for the $260 restitution payment will receive a postcard in the mail from a settlement administrator this spring.
Borrowers do not need to take any action other than making sure their studentaid.gov account is up to date with their current address.
Contact Brandon Holveck at email@example.com. Follow him on Twitter @holveck_brandon.
This article originally appeared on Delaware News Journal: Delaware-based Navient reaches settlement over student loan practices