Navient fined $120M, banned from federal mortgage servicing

Navient, an embattled scholar mortgage supplier, pays again $100 million to scholar 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 simply accept a everlasting ban on managing federal scholar loans.

The settlement, launched Thursday, brings an finish to one of many longest-running federal enforcement actions in opposition to 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 scholar mortgage data to credit score businesses and “illegally failed debtors at each stage of compensation.”

CFPB enforcement director Eric Halperin informed Inside Increased Ed that the bureau agreed to the settlement moderately than deliver the case to trial as a result of it could bar Navient from future alternatives to handle federal loans and supply speedy aid to 1000’s of scholar debtors.

“That is the end result of years of labor and a lot of efforts to rein in Navient and shield scholar debtors,” he stated.

Paul Hartwick, Navient’s vp of company communications, wrote in an e-mail to Inside Increased 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 keeping with our go-forward actions and is a crucial constructive 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 stated in a assertion Thursday. “By banning the infamous scholar mortgage big from federal scholar mortgage servicing and guaranteeing 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 out there. However for years Navient serviced 12 million scholar loans, together with six million federal loans. That portfolio made it the most important scholar mortgage servicer within the nation and an influential participant in federal scholar mortgage administration and coverage.

Mike Pierce, govt director and co-founder of the Scholar Borrower Safety Middle, stated Thursday’s enforcement motion was “unimaginable” when the CFPB first introduced its case in opposition to Navient in 2017.

“It’s arduous to overstate how dominant of a participant within the scholar mortgage system Navient was at the moment … every bit of the coed mortgage system ran by means of Navient headquarters in Delaware,” he stated. “The CFPB made a giant wager that you possibly can prosecute a giant public firm that dominated a market in a method that might really win a measure of justice for debtors.”

Pierce stated the long-running enforcement effort in opposition to 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 scholar mortgage contracting grew to become very concentrated over the previous 4 years,” he stated. “Navient acquired out of the sport, and so did others … The businesses which can be going to be keen to lift their hand and win these massive authorities contracts are going to take action trying over their shoulder, as a result of they know that regulators are watching.”

This yr, Navient transferred its remaining scholar mortgage portfolio—about 2.4 million loans—to the Increased 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 in opposition to Navient as a part of Thursday’s settlement will apply to the loans now at MOHELA, which Halperin stated provides extra accountability and protections for debtors sooner or later.

Pierce stated he anticipates scrutiny to ramp up on MOHELA as Navient’s saga involves an in depth. He additionally believes that personal scholar mortgage servicers, over whom the CFPB has much less regulatory management however vital oversight duties, shall be extra squarely in regulators’ crosshairs now; Senator Raphael Warnock, a Georgia Democrat, is chairing a listening to on the problem subsequent Tuesday.

Halperin didn’t reveal any particulars on the CFPB’s present scholar mortgage oversight agenda, however he stated the bureau plans to proceed holding scholar mortgage servicers—each federal contractors and personal suppliers—to account.

“Scholar mortgage servicing is a market with quite a lot of threat for shoppers, each in federal and personal loans, and it’ll proceed to catch the attention of the bureau,” Halperin stated. “There’s nonetheless far more work to do.”