CFPB Bars Navient From Federal Student Loan Business

Navient is exiting the federal student loan business as a regulator prepares to fine it $120 million.

The company, formerly known as Sallie Mae, was sued in 2017 by the Consumer Financial Protection Bureau (CFPB) over its lending practices.

Now, the regulator has filed an order that would ban Navient from servicing federal direct loans and bar the company from directly servicing or acquiring most loans under the Federal Family Education Loan Program, the CFPB said in a Thursday (Sept. 12) press release.

“These bans would largely remove Navient from a market where it, among other illegal actions, steered numerous student loan borrowers into costly repayment options,” the CFPB said in the release. “Navient also illegally deprived student borrowers of opportunities to enroll in more affordable income-driven repayment plans and forced them to pay much more than they should have.”

The order would also require Navient to pay a $20 million penalty and provide $100 million in redress for borrowers harmed by its actions, according to the release.

Navient said in a Thursday press release that it struck a deal to outsource student loan servicing beginning in July and reached an agreement with the CFPB to resolve the litigation and investigation.

“This agreement puts these decade-old issues behind us,” Navient said in the release. “While we do not agree with the CFPB’s allegations, this resolution is consistent with our go-forward activities and is an important positive milestone in our transformation of the company.”

Navient was the largest student loan servicer in the United States when the CFPB filed its suit in 2017. The action alleged that the company steered borrowers who might have been eligible for income-driven repayment plans into forbearance, leading these borrowers to pay interest charges they might have otherwise avoided.

“For years, Navient’s top executives profited handsomely by exploiting students and taxpayers,” CFPB Director Rohit Chopra said in the bureau’s press release. “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.”

The order comes as regulators crack down on what they say are abuses by companies in the student loan sector.

For example, the Federal Trade Commission (FTC) announced in July that a judge halted the operations and froze the assets of the operators of USA Student Debt Relief, with the regulator alleging that the company pretended to be affiliated with the Department of Education and its loan servicers and made false promises to borrowers.