By Jonathan Stempel and Douglas Gillison
(Reuters) -A U.S. regulator on Thursday banned Navient from servicing federal student loans, excluding the company once known as Sallie Mae from a market it once led, and ordered it to pay $120 million for years of student lending failures.
The U.S. Consumer Financial Protection Bureau said the ban would prevent Navient from servicing federal direct loans, and from directly servicing or acquiring most loans under the Federal Family Education Loan Program.
CFPB Director Rohit Chopra told reporters his agency was "closing the book" on Navient, saying the company "harmed millions of borrowers across the country."
The CFPB accused Navient of steering borrowers into delaying loan repayments even if they qualified for affordable repayment plans based on their incomes, causing them to pay more in interest, because it was cheaper and simpler.
It also faulted Navient for making mistakes in processing payments, and misleading borrowers about their rights.
The payment includes $100 million in restitution, and a $20 million civil fine.
Navient, based in Herndon, Virginia, said in a statement it disagreed with the CFPB allegations, but that the settlement "puts these decade-old issues behind us" and was a "positive milestone in our transformation of the company."
In January 2022, Navient reached a $1.85 billion settlement with 38 U.S. states and Washington, D.C. to resolve charges it made predatory loans that borrowers struggled to repay.
Navient said it no longer serviced or purchased federal student loans, having in 2021 transferred its contract to service government loans to a third party, and in July begun outsourcing the servicing of federally subsidized private loans.
In afternoon trading, Navient shares were up 6.2% at $15.57.
Chopra told Reuters in an interview that while Navient had been taking steps to move away from its past, Thursday's enforcement action ensured it would stay out of the business.
"They will need to transform their business because they will not be able to creep their way back into the student loan industry again," he said.
The settlement resolves a CFPB lawsuit filed in Scranton, Pennsylvania in January 2017, and requires a judge's approval.
Navient was the largest U.S. student loan servicer when the lawsuit began, handling more than $300 billion of federal and private loans for over 12 million borrowers, the CFPB said.
(Reporting by Jonathan Stempel in New York and Douglas Gillison in Washington; Editing by Chizu Nomiyama, Franklin Paul and Diane Craft)
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