Navient Federal Student Loans Lawsuit: A Comprehensive Overview

Navient, formerly a major player in the student loan servicing industry, has faced significant legal challenges and settlements in recent years. These actions stem from allegations of unfair and deceptive practices that harmed borrowers. This article delves into the details of these lawsuits, settlements, and the implications for borrowers.

Key Settlements and Lawsuits Involving Navient

$120 Million Settlement with the CFPB

In a landmark decision, Navient reached a $120 million settlement with the Consumer Financial Protection Bureau (CFPB). This settlement included a ban preventing Navient from servicing federal student loans in the future. The CFPB had accused Navient of steering borrowers toward costly repayment options and illegally depriving them of the opportunity to enroll in more affordable income-driven plans.

Of the $120 million, $100 million was designated for payments to affected customers, while the remaining funds were allocated to the CFPB's civil penalty fund. Under Secretary of Education James Kvaal emphasized that this action aligns with the Biden-Harris administration's efforts to hold services accountable and provide relief to impacted borrowers.

2017 CFPB Lawsuit

The CFPB's initial lawsuit against Navient in 2017 alleged that the company misled borrowers, causing them to pay significantly more than necessary. The suit also claimed that Navient harmed the credit reports of disabled borrowers, including veterans with severe injuries. The CFPB further accused Navient of misallocating payments and obscuring essential information needed to maintain lower payments. At the time, Navient serviced loans for over 12 million borrowers, with approximately half of these loans under contract with the U.S. Department of Education.

$1.85 Billion Settlement with State Attorneys General

In 2022, Navient reached a $1.85 billion settlement with a coalition of 39 state attorneys general. This settlement addressed allegations of predatory student loan servicing practices. As part of the agreement, Navient was required to cancel $1.7 billion in private student loan debts.

Allegations of Steering Borrowers into Forbearance

A central allegation against Navient was that the company steered borrowers into forbearance instead of informing them about the benefits of income-driven repayment plans. This practice, while simpler and cheaper for Navient, proved detrimental to borrowers. Forbearance allows borrowers to postpone payments, but interest continues to accrue, leading to increased loan balances.

Violations of Consumer Financial Protection Laws

The CFPB alleged that Navient violated the Consumer Financial Protection Act, the Fair Credit Reporting Act, and the Fair Debt Collection Practices Act. These violations included misleading borrowers about income-driven repayment plans, botching payment processing, harming the credit of disabled borrowers, deceiving borrowers about cosigner release requirements, and misleading borrowers about improving credit scores through federal student loan rehabilitation.

Navient's Response and Transformation

Navient has stated that while they disagree with the CFPB's allegations, the resolution aligns with their ongoing activities and marks a positive step in the company's transformation. In 2021, Navient announced its exit from federal student loan servicing, transferring its contract to a third party, Aidvantage. Earlier in 2024, the company revealed plans to outsource the servicing of its remaining accounts.

Reactions to the Settlements

Senator Elizabeth Warren (D-Mass.) praised the CFPB's actions, stating that "millions of people are breathing a huge sigh of relief." She emphasized that borrowers are finally receiving the relief they deserve and that Navient will no longer operate as a federal student loan servicer.

Impact on Borrowers

The CFPB estimates that hundreds of thousands of consumers will be included in Navient's redress payments. The exact number of affected borrowers and the amount they will receive are yet to be determined by the bureau.

Read also: Understanding Student Loans

Restitution for Federal Loan Borrowers

Qualifying federal loan borrowers who were residents of specific states or had an address with a military postal code as of January 2017 will receive a check of approximately $260.

Cancellation of Private Loans

Certain private loan borrowers will receive a notice from Navient that their qualifying private loan has been canceled. Credit bureaus will also be alerted to remove the loan's tradeline.

Understanding Navient's Role in the Student Loan Landscape

Navient was created in 2014 when Sallie Mae (SLM Corporation) separated its loan servicing and recovery business from its consumer banking business. Despite promising to help borrowers find the best repayment options, Navient allegedly steered distressed borrowers into costly long-term forbearances instead of informing them about income-driven repayment plans.

Ongoing Issues and Future Considerations

Transfer of Servicing to Aidvantage

In January 2022, Navient transferred the servicing of federal student loans to Aidvantage. Borrowers whose loans were transferred can log in to their Aidvantage online account using the same User ID and Password they used at Navient.

One-Time Adjustment by the Department of Education

The Department of Education is conducting a "One-Time Adjustment" to provide borrowers with certain federal loan types qualifying months toward loan forgiveness under an income-driven repayment plan. This adjustment may provide credit for past repayment periods and certain forbearances and deferments. Privately owned FFELP loans must be consolidated into the Direct Loan Program by December 31, 2023, to receive this credit.

Resources for Borrowers

Borrowers facing problems with Navient or other student loan servicers can seek assistance from state-level student loan advocates. These advocates can assist in resolving complaints and exploring repayment options. Additionally, resources are available for borrowers who believe their school misled them or engaged in misconduct.

New Lawsuit against Navient in Illinois

In February 2025, a student borrower in Illinois filed a proposed class action lawsuit against Navient for denying student loan discharges where there is evidence of fraud. The lawsuit seeks relief for Illinois borrowers who applied for loan cancellation through Navient’s “School Misconduct Discharge Application.” The complaint alleges that the denials are unfair, inconsistent with evidence, and violate consumer protection laws. Borrowers are demanding a fair review process and compensation for disregarding their legal rights.

The plaintiff, Amanda Luciano, attended the International Academy of Design & Technology (IADT), a for-profit school owned by Career Education Corporation (CEC). Despite submitting the application with evidence of IADT’s and CEC’s history of consumer fraud, she received a denial with no explanation.

Navigating Student Loan Repayment

Income-Driven Repayment Plans

Borrowers struggling to afford their federal student loan payments should consider applying for an income-driven repayment plan. These plans offer payments as low as $0 per month, based on family size and income. Income-driven plans also provide the possibility of loan forgiveness after 20 or 25 years of qualifying payments. The Revised Pay As You Earn (REPAYE) plan offers the most generous interest subsidy.

Self-Certification of Income

Direct Loan borrowers can "self-certify" their income when applying for income-driven repayment or requesting recalculation of their payment amount. This means they can report their income without submitting tax returns or alternative documentation of income.

Public Service Loan Forgiveness (PSLF)

Loan forgiveness is available to some borrowers under the Public Service Loan Forgiveness (PSLF) Program and the Temporary Expanded Public Service Loan Forgiveness (TEPSLF) Program. Borrowers may need to consolidate into the Direct Loan program and/or file employment certifications to benefit.

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