BOSTON — Attorney General Maura Healey has reached a multi-million dollar settlement with the nation’s largest college loan servicing company in a lawsuit alleging predatory lending and deceptive business practices.
Under the $1.85 billion settlement, which includes Massachusetts and 38 other states, Navient will be required to cancel $1.7 billion in subprime private student loan debt owed by nearly 66,000 borrowers and make $95 million in restitution payments to about 350,000 federal loan borrowers who were placed in certain types of long-term forbearance.
More than 8,300 Massachusetts borrowers who took out federal loans will get about $6 million in loan relief, Healey said. Another 1,500 borrowers who took out private loans through the company will receive more than $41 million in private loan relief.
“The bottom line is that student borrowers here in Massachusetts and around this country who were already facing financial hardship, were driven further into debt by Navient at a time when they needed help most, “ Healey told reporters at a Thursday briefing.
“These debts have had real consequences,” she said. “They’ve held people back from buying homes, cars, saving for retirement, pursuing careers or investing in their own children.”
The settlement will resolve claims that Navient steered tens of thousands of struggling student loan borrowers into costly long-term forbearances instead of more affordable income-driven repayment plans.
Healey said the interest that accrued because of Navient’s forbearance steering practices was added to the borrowers’ loan balances, pushing them further into debt.
She said the company also issued subprime loans to college students that were “destined to fail” and added to the nation’s crushing student debt.
In a statement, the company said it “expressly denies violating any law, including consumer-protection laws, or causing borrower harm.”
“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,” Mark Heleen, Navient’s chief legal officer, said in the statement.
As part of the settlement, Naviant will cancel loan balances of about 66,000 borrowers with qualifying private education loans that were issued between 2002 and 2010. The company said it will begin notifying the affected borrowers and co-borrowers “shortly” after the agreements receive final court approvals.
Healey and other attorneys general sued the company about five years ago, accusing it of using deceptive practices in student loan servicing.
The Consumer Financial Protection Bureau has also sued Navient in federal court over claims that its lending tactics inflated borrowers’ bills by billions of dollars.
The outcome of that legal challenge is still pending.
In 2009, the U.S. Department of Education’s inspector general began an investigation of Sallie Mae, Navient’s predecessor, over allegations that the student loan company had overcharged for student loan subsidies. The company was later ordered to repay $22 million to the federal government.
Student loan servers have come under increasing scrutiny from states and the federal government in recent years amid allegations of predatory lending that have contributed to a record level of student debt.
In February, Healey reached a settlement with the Pennsylvania Higher Education Assistance Agency to resolve allegations that its deceptive practices caused public servants in Massachusetts and other states to lose benefits and financial assistance under two federal programs.
Christian M. Wade covers the Massachusetts Statehouse for North of Boston Media Group’s newspapers and websites. Email him at firstname.lastname@example.org.