Navient, CFPB reach $120M settlement over landmark student loan servicing case

Navient has agreed to pay $120 million to resolve Consumer Financial Protection Bureau allegations that for years it illegally serviced federal student loans, ending a high-profile case that spanned three presidential administrations.

The settlement , filed in court on Thursday, also bans the company from servicing federal student loans again in the future.

The deal concludes the CFPB’s lawsuit against the company that was brought in the waning days of the Obama administration in January 2017. In the years since, Navient and CFPB officials have sparred in court over the allegations that the company misled borrowers, steered them into costly repayment programs, misapplied payments and bungled credit reports.

“For years, Navient’s top executives profited handsomely by exploiting students and taxpayers,” CFPB Director Rohit Chopra said in a statement. "By banning the notorious student loan giant from federal student loan servicing and ensuring the winddown of these operations, the CFPB will finally put an end to the years of abuse.”

As part of the agreement, Navient will pay $20 million in a penalty and fund $100 million in compensation that the CFPB will distribute to student loan borrowers.

“This agreement puts these decade-old issues behind us,” Paul Hartwick, a company spokesperson, said in an email. “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.”

The CFPB’s investigation into Navient marked a major turning point in how regulators and law enforcement approached the companies that manage the federal government’s $1.5 trillion portfolio of student debt.

The case kicked off a wave of scrutiny of Navient and the student loan servicing industry generally, leading state attorneys general to file similar lawsuits and spurring some blue states to enact laws targeting the industry.

More recently, the Biden administration relied in part on the CFPB’s allegations to justify some of its tens of billions of dollars of loan forgiveness. The Education Department, which praised the settlement, previously said it needed to retroactively adjust borrower accounts and wipe out debts to compensate borrowers who might have earlier qualified for relief it they hadn’t been misled by their servicer.

Mike Pierce, a former CFPB official who now leads the advocacy group Student Borrower Protection Center, called the case “one of the highest-impact public enforcement actions of this century.”

“Today’s action shows that a committed regulator can win justice for borrowers and drive bad actors from the marketplace,” he said.

A federal judge in Pennsylvania will still need to approve the settlement. The CFPB said that, if approved, the bureau would automatically mail checks to borrowers who were affected.

Navient, which was spun off from Sallie Mae in 2014, was at its peak one of the nation’s largest servicers of federal student loans. It was also a major target of progressive anger. Sen. Elizabeth Warren (D-Mass.) frequently fought with Navient CEO Jack Remondi, and she led Democrats to pressure the Education Department to fire the company.

The Biden administration in 2021, led by Federal Student Aid chief Rich Cordray, ultimately negotiated the company’s exit from the federal student lending program. Cordray was the CFPB chief who initially brought the Navient lawsuit in 2017.

Earlier this year, Navient began outsourcing the servicing of its remaining portfolio of federal student loans that were privately held. The company still has a portfolio of private student loans.

During the Trump administration, Navient and Remondi waged a public and private lobbying campaign to get the CFPB to drop the case. But bureau officials continued the case even as the Trump-era CFPB eased up scrutiny of student loan companies more broadly .

The settlement reached Thursday comes more than a year after David Yowan, a former American Express executive, succeeded Remondi as Navient’s CEO.

Industry officials said the case was emblematic of federal student loan servicers being caught in between the Education Department, which hires them, and the CFPB, which regulates them.

Scott Buchanan, who leads the Student Loan Servicing Alliance, a trade group of loan servicers, blasted the CFPB’s approach to the case on Thursday. “The Bureau knows full well its specific accusations are without merit — which is probably why they agreed to settle and move on for what may be just little more than the wasted costs of litigation for both sides since 2017,” he said.

The CFPB lawsuit was also a major flash point in what for years was a turf war between the consumer bureau and the Education Department over how to oversee the companies hired to collect federal student loans.

During the case, the CFPB fought in court not only against Navient but also against the Trump-era Education Department , which declined to provide student loan records that the CFPB needed to prosecute the case. The judge ruled in the CFPB’s favor on the issue.

One of the central allegations in the CFPB lawsuit was that Navient pushed borrowers into forbearance because it was easier and cheaper for the company, even though borrowers could end up paying more under that option and lose out on forgiveness benefits.

Navient denied those allegations and fought against them in court . Among the evidence that the CFPB filed in court was an internal company document that described its strategy: “Our battle cry remains ‘ forbear them, forbear them, make them relinquish the ball, ’” the 2010 memo said.