Navient settles student loan suit $1.85 billion while adamantly denying wrongdoing


Wilmington-based Navient agreed to a  $1.85 billion settlement with student loan borrowers under the terms of  a multistate settlement.

About 1,500 borrowers in Delaware will benefit.

The company was adamant in denying any wrongdoing. 


“The company’s decision to resolve these matters, which were based on unfounded claims, allows us to avoid the additional burden, expense, time and distraction to prevail in court,” said Navient’s chief legal officer Mark Heleen. “Navient is and has been continually focused on helping student loan borrowers understand and select the right payment options to fit their needs. In fact, we’ve driven up income-driven repayment plan enrollment and driven down default rates, and every year, hundreds of thousands of borrowers we support successfully pay off their student loans.”

Delaware’s share $5.34 million

According to Jennings, more than 97% of Delaware’s $5.34 million share of the settlement will go directly to Delaware borrowers in the form of borrower restitution or private loan forgiveness.

Delaware was a party to the suit. “Addressing the student loan crisis is one of my biggest consumer protection priorities,” said Attorney General Kathy Jennings. “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. With Day One debt burdens sometimes eclipsing six figures, it’s no surprise that thousands of people struggle to make ends meet. At a minimum, loan servicers should be expected to follow the law.”

According to Jennings, the Delaware  Department of Justice played a leading role in investigating Navient’s alleged misrepresentations regarding the discharging of private student loans in bankruptcy.

Delaware’s investigation focused on a private loan known as a “tuition answer loan,” which typically required borrowers to agree at the time of origination that the loan would not be dischargeable in bankruptcy. The DOJ’s Consumer Protection Unit reviewed promissory notes and interviewed nearly 100 Delaware borrowers.

‘Tuition answer loans’

The multistate investigation also reviewed further allegations of misconduct by Navient, including:

  • Steering borrowers into expensive “forbearances” to avoid default, which did nothing to reduce their existing debt burden or interest rate;
  • Failing to direct consumers to alternative repayment options such as income-driven repayment plans or public service loan forgiveness; and
  • Originating subprime loans for students attending for-profit colleges with low graduation rates.

According to the attorneys general, the interest added to Navient’s forbearance steering practices was added to the borrowers’ loan balances, pushing borrowers further in debt. Had the company instead provided borrowers with the help it promised, income-driven repayment plans could have potentially reduced payments to as low as $0 per month, provided interest subsidies, and/or helped attain forgiveness of any remaining balance after 20-25 years of qualifying payments (or ten years for borrowers qualified under the Public Service Loan Forgiveness Program).

Navient also allegedly originated predatory subprime private loans to students attending for-profit schools and colleges with low graduation rates, even though it knew that a very high percentage of such borrowers would be unable to repay the loans. Critics of the practice said the strategy disproportionately affected those with lower incomes and people of color.

Balances on some loans canceled

Navient allegedly made the subprime loans as “an inducement to get schools to use Navient as a preferred lender” for highly-profitable federal and “prime” private loans, without regard for borrowers and their families, many of whom were unknowingly ensnared in debts they could never repay, according to a release from  Jennings’ office.

Under the settlement terms, Navient will cancel the remaining balance on more than $1.7 billion in subprime private student loan balances owed by more than 66,000 borrowers nationwide. 

In addition, Navient will pay $142.5 million to the attorneys general. A total of $95 million in restitution payments of about $260 each will be distributed to approximately 350,000 federal loan borrowers who were placed in certain types of long-term forbearances. Borrowers who will receive restitution or debt cancellation span all generations.

As part of the settlement, Delaware will receive a total of $400,000 in restitution payments for 1,528 federal loan borrowers. Additionally, 145 Delaware borrowers will receive nearly $4.8 million in private loan debt cancellation.

Reforms in conduct part of the settlement

The settlement includes conduct reforms that require Navient to explain the benefits of income-driven repayment plans and to offer to estimate income-driven payment amounts before placing borrowers into optional forbearances.

Additionally, Navient must train specialists who will advise distressed borrowers concerning alternative repayment options and counsel public service workers concerning Public Service Loan Forgiveness (PSLF) and related programs. Navient also may not compensate customer service agents in a manner that incentivizes them to minimize time spent counseling borrowers.

The settlement also requires Navient to notify borrowers about the U.S. Department of Education’s recently announced PSLF limited waiver.

Borrowers receiving private loan debt cancellation will be notified by Navient no later than July 2022 and will receive a refund of any payments made on the canceled private loans after June 30, 2021. Federal loan borrowers eligible for a restitution payment of approximately $260 will receive a postcard in the mail from the settlement administrator later this spring.

Federal loan borrowers who qualify for relief under this settlement do not need to take any action except to update or create their account to ensure that the U.S. Department of Education has their current address. For more information, visit

The company earlier exited the federal student loan servicing business after efforts to quash a lawsuit from a federal consumer protection bureau failed, even during the more business-friendly Trump Administration.

Navient has also seen activity from an activist shareholder who bought a large chunk of the company’s stock. The company is using a “poison pill” strategy that dilutes the share of that group’s stock if its holdings reach a set percentage of shares outstanding.

 Attorney General  Jennings has not shied away from joining such lawsuits. In the past, the state sometimes sat out cases involving companies based in Delaware.

Despite the size of the settlement, the price of Navient shares rose by 1.5% in Tuesday trading.

The case was handled for the Delaware Department of Justice by the Attorney General’s Fraud and Consumer Protection Division, including Deputy Attorney General Katherine Devanney, Paralegals Zuri Ramsey and Rhynn Evans, Special Investigator Robert Schreiber, and former Deputy Attorney General Gina Schoenberg, under the supervision of Consumer Protection Director Marion Quirk and Division Director Owen Lefkon.