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Navient, one of the nation’s largest student loan companies, has inked a $1.85 billion settlement with a coalition of state attorneys general, including Iowa’s, to resolve allegations that it steered borrowers into costly repayment plans and predatory loans.
The agreement, set to be announced Thursday, puts to rest multiple state probes into the company’s loan servicing and lending practices dating back to when it was known as Sallie Mae.
It spans 39 states and Washington, D.C., and will deliver $1.7 billion in private student loan cancellation to 66,000 borrowers nationwide, and another $95 million in payouts.
“This long-overdue relief will help borrowers move forward and set an example for student loan servicers in the future,” Iowa Attorney General Tom Miller said in a news release.
The settlement will require court approval, Miller said.
Under the terms of the settlement, Navient will cancel the remaining balance on more than $1.6 billion in subprime private student loan balances owed by approximately 62,000 borrowers nationwide, according the release from Miller’s office.
In addition, 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, it said.
Navient vehemently denies all charges and insists there is not a shred of evidence that substantiates the allegations.
The decision to settle was purely an economic one, according to the company, as it would cost less to resolve the cases — some of which are more than eight years old — than to fight each individual lawsuit.
States accused Navient of encouraging struggling borrowers to postpone payments through forbearance rather than enroll in low-cost repayment plans tied to their income.
Prosecutors said the company — which long managed federal student loans on behalf of the U.S. Department of Education but said in the fall that it would transfer accounts to another company — opted for a faster, cheaper route that requires less paperwork.
But the move cost borrowers as the accumulated unpaid interest on their loans was tacked onto their balances.
The states alleged Navient customers who were enrolled in multiple, consecutive forbearances from January 2010 to March 2015 had more than $4 billion in accrued interest added to their principal.
Roughly 350,000 federal student loan borrowers who were placed in certain types of long-term forbearances will receive payments of about $260.