Navient Lawsuit Update: Borrowers to Receive Payout in $120M CFPB Settlement

The years-long Navient saga may be coming to a close with a proposed order filed by the Consumer Financial Protection Bureau (CFPB) on September 12 that would ban the notorious student loan servicer from servicing federal loans and provide $120 million in consumer relief.

If entered by the court, the proposed order would end what the CFPB called Navient’s “years of failures and lawbreaking” by permanently banning the company from servicing federal direct loans and acquiring loans under the Federal Family Education Loan Program (FFELP). The agreement would resolve a lawsuit filed by the CFPB in 2017 that accused Navient of myriad predatory and abusive practices that allegedly caused thousands of student loan borrowers to pay more than they should have.

The Navient settlement also aims to provide significant financial relief to consumers as it requires the company to pay $100 million in redress to harmed borrowers and a $20 million penalty into the CFPB victims relief fund, which is used to compensate consumers who have been harmed from violations of consumer financial protection laws.

Read on to find out what to expect from the settlement and more details about the lawsuit that could prove to be the final nail in the coffin for Navient’s federal loan servicing business.

Am I eligible for a Navient settlement payment?

Under the terms of the proposed order, Navient will be required to pay $100 million into a fund to be used by the CFPB to mail payments to “injured consumers as identified by the Bureau.”

Court documents do not specify who will receive payments, but Navient is required to cooperate with the CFPB in providing information about the identities and last-known locations and contact information for certain borrowers, which may help the bureau determine who was harmed by Navient’s actions.

How do I claim a payout from the Navient settlement?

The CFPB stated in a press release that consumers will not need to do anything in order to receive a payment from the Navient settlement; the bureau will automatically mail checks to those who are eligible for redress.

The CFPB also warned that scammers may try to trick potential recipients into providing money or personal information in order to obtain a payment.

“The CFPB will never require consumers to pay money to obtain redress, nor will we ask for additional information before consumers can cash a redress check that we’ve issued,” the CFPB stated.

What other relief does the Navient settlement provide?

Significantly, the settlement will permanently ban Navient from servicing or assisting others in servicing federal direct loans, which are student loans made directly by the U.S. Department of Education.

The servicer will also be banned from acquiring or servicing any additional Federal Family Education Loan Program (FFELP) loans.

Navient’s contract with the Department of Education expired in 2021, and the CFPB’s order will ensure that the servicer “can never harm federal student loan borrowers at scale” by restarting its federal loan servicing business or expanding its FFELP portfolio, the CFPB wrote.

The order also requires Navient to agree to certain servicing terms for any remaining loans for which it is the master servicer. According to the order, Navient must implement or continue the following practices, among other steps, to ensure borrowers’ rights are protected:

Further, Navient has been ordered to communicate accurate information to borrowers with respect to alternative payment plans to ensure that they know which options are available, how to exercise those options, and when certain actions are required of them to avoid disqualifying their loans for certain repayment plans or missing out on loan forgiveness.

Navient must also provide borrowers with clear and complete information about the payoff process and properly notify them of any servicer transfers.

What was the Navient lawsuit about?

In January 2017, the CFPB filed a lawsuit in Pennsylvania federal court against Navient Corporation (formerly known as Sallie Mae) and subsidiaries Navient Solutions and Pioneer Credit Recovery, Inc. The case alleged that Navient, the largest student loan servicer in the United States at the time, violated the Consumer Financial Protection Act, Fair Credit Reporting Act and Fair Debt Collection Practices Act by steering borrowers into more costly repayment options, depriving them of opportunities to enroll in lower-cost plans, and generally “failing borrowers at every stage of repayment.”

Specifically, the case claimed Navient directed borrowers experiencing long-term financial hardship into forbearance instead of income-driven repayment plans that would end up costing them less. For borrowers who enrolled in income-driven repayment plans, Navient failed to inform them of the requirement to recertify their enrollment on an annual basis, causing some borrowers to pay higher monthly payments and delaying loan cancellation, the CFPB alleged.

The lawsuit also accused Navient of misallocating borrowers’ payments when they had multiple loans, resulting in late fees, accrued interest and negative credit reporting.

Further, Navient allegedly damaged the credit of certain disabled borrowers, including veterans, by reporting inaccurate information to credit bureaus when a borrower received a discharge on their federal loans due to a permanent disability.  

The case also claimed that Navient deceived certain borrowers about the requirements for cosigner release and failed to follow through on its promises of credit reporting relief to borrowers who completed a loan rehabilitation program after their loan went into default.

Was this a class action lawsuit?

No, the lawsuit filed against Navient by the CFPB was not a class action, which is one reason consumers don’t need to go through the typical class action settlement process of filing a claim in order to get a payment.

Aside from class actions, another way consumers can get relief from alleged violations of the law is through enforcement actions filed by government agencies. The Consumer Financial Protection Bureau is one such agency that is authorized to take action against companies on behalf of consumers—specifically, for violations of consumer financial protection laws.

In this case, the CFPB action against Navient led to a wave of litigation against the company, including a handful of class action lawsuits, over its loan servicing and debt collection practices. In fact, lawsuits filed by dozens of state attorneys general resulted in a $1.85 billion settlement in January 2022 that provided debt cancellation and cash payments for thousands of student loan borrowers.

CFPB Director Rohit Chopra said of the bureau’s settlement with Navient that the order “will finally put an end to the years of abuse” suffered by students and taxpayers at Navient’s hands.

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