The Consumer Financial Protection Bureau (CFPB) has ordered Navient to pay $120 million in financial penalties and redresses for what it called failures in its student loan servicing business.
Aside from the monetary penalties, the CFPB also proposed banning Navient from servicing federal Direct Loans. It could also be prohibited from directly acquiring or servicing most loans under the Federal Family Education Loan Program, the agency announced on Thursday.
"For years, Navient's top executives profited handsomely by exploiting students and taxpayers," according to a statement from CFPB director Rohit Chopra. "By banning the notorious student loan giant from federal student loan servicing and ensuring the winddown of these operations, the CFPB will finally put an end to the years of abuse."
In response to the CFPB's proposed order, Herndon, Va.-based Navient said in a statement that while it does not agree with the CFPB's allegations, the resolution is consistent with its future activities and is an important positive milestone in its transformation.
The action stems from 2017, when the CFPB filed a lawsuit during Navient's position as the largest student loan servicer in the United States. Navient, which spun off from Sallie Mae, steered borrowers who might have qualified for income-driven repayment plans into forbearance instead.
Forbearance is detrimental to borrowers—but profitable to companies—because interest continues to accrue and borrowers end up paying additional charges, CFPB said.
"Navient's illegal actions led numerous borrowers to pay additional interest charges," according to a statement from the CFPB.
The CFPB pointed to several other failures, in addition to unlawful steering. For one, the agency said, Navient failed to adequately notify borrowers that enrolled in income-driven repayment plans that they needed to recertify their enrollment. That lag exposed borrowers to potential increases in their monthly payments, and delayed loan cancellation.
Also, the CFPB claimed, Navient mishandled payment processing, resulting in late fees, interest accrual and negative credit reporting. Borrowers with disabilities were also exposed to credit risks, as Navient also tarnished the credit reports of borrowers who had received a discharge on their federal student loans due to their disability, the CFPB said.
If the proposed ban goes through, it will sever another tie that Navient had with federal agencies for servicing student loans. The Department of Education ended its contract with Navient in 2021, and by early 2024 Navient announced that it intended to transfer its remaining loan servicing operations to another company.
