On Thursday, Pennsylvania Attorney General Josh Shapiro announced that Navient, the country's largest student loan servicer, will pay $1.85 billion to resolve allegations of "widespread unfair, deceptive, and abusive student loan servicing practices and abuses in originating predatory student loans."
The settlement, coordinated by a coalition of 39 attorneys general, resolves claims dating back to 2009 and will result in $1.7 billion in debt cancellation and $95 million in restitution.
The student loan cancellation will impact approximately 66,000 private student loan borrowers. Eligible private student loan borrowers should receive a notice from Navient by July 2022, along with refunds of any payments made on the canceled private loans after June 30, 2021.
The restitution funds will be distributed to approximately 350,000 eligible federal student loan borrowers, who will be notified of their eligibility for a $260 restitution payment via a mailed postcard this spring.
"Navient repeatedly and deliberately put profits ahead of its borrowers – it engaged in deceptive and abusive practices, targeted students who it knew would struggle to pay loans back, and placed an unfair burden on people trying to improve their lives through education," says Shapiro in a statement. "Today's settlement corrects Navient's past behavior, provides much needed relief to Pennsylvania borrowers, and puts in place safeguards to ensure this company never preys on student loan borrowers again."
In the agreement, Navient denies wrongdoing and in a press release, Navient executives continued to push back against the claims.
"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," says 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."
"The agreements resolve all six AG lawsuits against Navient," a representative for Navient tells CNBC Make It over email. "Navient booked an after-tax charge of approximately $170 million due to the agreement. The value of the canceled defaulted loans is approximately $50 million."
Student loan borrower advocates applaud the "landmark" settlement.
"Today's action is a clear victory for many of the millions of borrowers whose pain Navient and Sallie Mae shamelessly turned into profit," states Mike Pierce, executive director of the Student Borrower Protection Center. "Navient cheated borrowers at every stage of repayment, taking advantage of low-income borrowers, disabled veterans, seniors, and more, all in service to its bottom line. Today, these 39 states won a hard-fought battle to remedy this long history of abuse."
Sallie Mae is Navient's predecessor company.
Pierce continues, aiming critique at Navient's chief executive.
"Borrowers may not be able to enjoy Navient CEO Jack Remondi's $8 million salary," he says. "But they can rest a little bit easier knowing that a measure of justice has been served."