Navient, a major financial services company that primarily specialized in servicing and managing student loans, has agreed to pay $120 million to resolve allegations brought by the Consumer Financial Protection Bureau (CFPB). This settlement concludes the end of a contentious, years-long legal battle that began in January 2017 during the Obama administration. The case has centered on claims that Navient had engaged in unfair practices that harmed borrowers, including misallocating payments, misleading borrowers about repayment options, and failing to adequately assist borrowers in need of support.

The settlement is substantial, with $100 million allocated for compensating affected borrowers, who will receive payments from the CFPB without needing to take any action. The remaining $20 million will be directed to the CFPB’s civil penalty fund. This resolution also includes a ban preventing Navient from servicing federal student loans in the future, effectively ending its involvement in this sector.

A key allegation in the CFPB’s lawsuit was that Navient directed borrowers into forbearance instead of more appropriate income-driven repayment plans, leading to higher costs for borrowers due to accumulating interest.

Forbearance is a temporary relief option for borrowers who are struggling to make regular loan payments due to financial hardship. When a borrower requests forbearance, the lender may allow them to pause or reduce their payments for a set period. While this provides immediate financial relief, interest on the loan continues to accrue during the forbearance period.

The bureau argued that this practice was financially advantageous for Navient but detrimental to borrowers. By steering borrowers into prolonged forbearance, Navient purportedly led many into deeper debt, accumulating additional interest and delaying their path to debt relief. This strategy exacerbated financial strain for borrowers by potentially extending their loan term, making it harder for them to achieve financial freedom.

This settlement follows a 2022 $1.85 billion agreement with 39 states, where Navient addressed similar allegations to those in the recent CFPB case.

Navient has consistently denied these allegations, asserting that the CFPB's claims mischaracterize its business practices. The company argued that many borrowers chose forbearance due to their financial situations or because they did not qualify for income-driven repayment plans. Despite these denials, Navient has decided to settle.