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A yearslong legal battle with a major student-loan company has finally come to an end, and borrowers are getting their money back.
On Thursday, the Consumer Financial Protection Bureau announced it had reached a settlement with servicer Navient, resolving claims in a 2017 lawsuit that accused the servicer of misleading borrowers about their payment options through income-driven repayment plans and misapplying payments borrowers made to particular loans, forcing many borrowers to be "cheated" out of lower payments and relief.
"Taken together," the original complaint stated, "these practices prevented some of the most financially vulnerable borrowers from securing some or all of the benefits of plans that were intended to ease the burden of unaffordable student debt."
The settlement permanently bans Navient from servicing federal loans and prohibits the servicer from managing most loans within the Federal Family Education Loan program. It also requires Navient to pay a $20 million penalty to the CFPB, along with $100 million to impacted borrowers.
According to the press release, the CFPB will mail checks to impacted borrowers, and they do not need to do anything to obtain the relief.
"I think there's been millions of Americans who could have avoided the consequences of default if they had been treated properly by their servicer," CFPB Director Rohit Chopra told Business Insider in a Thursday interview.
"The servicer signs up to offer repayment options to borrowers, including affordable income-based repayment programs," Chopra continued. "But when they're trying to rush people off and put them in any possible plan that feeds their bottom line, that's a huge problem, and it can break the law. So I think student loan servicers have to realize that it's not the government's job to guarantee them a fat profit. They sign up to serve borrowers fairly, and they have to live up to that."
Navient did not deny any wrongdoing. The company said in a statement that "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."
Eric Halperin, the CFPB's enforcement director, told Business Insider on the press call that the agency is still conducting analysis on the number of borrowers who will receive redress repayments and that he expects it to be "hundreds of thousands" of borrowers who will benefit.
Along with the redress payments and the ban on federal loan servicing, the proposed order also stated that Navient must inform borrowers of all existing repayment plans and provide written payment histories to borrowers upon request.
In 2021, Navient announced its plans to leave the federal loan servicing industry to focus just on managing private student loans. Still, since then, the CFPB and some Democratic lawmakers have expressed concerns with Navient, leading to separate settlements over the past years.
Last year, for example, Navient agreed to a $198 million settlement with private student-loan borrowers who claimed the lender was collecting debts that should have been discharged in bankruptcy.
Along with Navient, the CFPB recently filed a lawsuit against student-loan company PHEAA, accusing it of illegally collecting payments from borrowers who were discharged in bankruptcy. A final decision for that case is still pending.
"We're also looking under the hood at all sorts of financial companies, especially loan servicers, and seeing, are they actually processing payments properly? Are they actually adhering to the established guidelines?" Chopra said. "And I think a lot of that work we're doing is behind the scenes of preventing a lot of harm to people. So expect more."
