Navient Settles for $1.85 Billion Over Student Loan Servicing Fraud - Steered Borrowers Into Costly Forbearances

A bipartisan coalition of 39 state attorneys general announced a $1.85 billion settlement with Navient Corporation on January 13, 2022, resolving allegations that the student loan servicing giant engaged in systematic fraud by steering struggling borrowers into costly long-term forbearances instead of counseling them about affordable income-driven repayment plans. The settlement included $1.7 billion in private student loan debt cancellation for approximately 66,000 borrowers and $95 million in restitution payments of about $260 each to approximately 350,000 federal loan borrowers.

The settlement documented Navient’s predatory servicing practices since 2009: despite representing that it would help borrowers find the best repayment options, Navient systematically pushed struggling borrowers into forbearances that were easier for Navient to administer but disastrous for borrowers. During forbearance, interest accrued and was capitalized into loan principal, pushing borrowers deeper into debt and increasing Navient’s profits from interest. Income-driven repayment plans would have been far better for borrowers—providing affordable payments and eventual forgiveness—but required more Navient staff time and reduced interest revenue.

The fraud was systematic and profit-driven: Navient customer service representatives were incentivized to minimize call times and push forbearances over income-driven repayment counseling. Borrowers who called seeking help were told forbearance was their best option without being informed about income-driven plans, Public Service Loan Forgiveness, or other programs that could have saved them thousands. The Consumer Financial Protection Bureau separately banned Navient from federal student loan servicing and ordered $120 million in additional penalties for the “wide-ranging failures.”

The settlement exposed how student loan servicers profited from borrower distress. Navient was paid by the government to service loans and supposedly help borrowers, but its business model incentivized maximizing borrower costs through forbearance steering and minimizing time spent on borrower assistance. The company serviced loans for both federal and private lenders, creating conflicts of interest where helping borrowers (through lower payments or forgiveness programs) reduced servicer revenue from interest and fees.

The $1.85 billion settlement was massive but inadequate: it covered subprime private loans largely originated 2002-2010 that were already in default, so Navient canceled mostly uncollectible debt. Federal loan borrowers received only $260 restitution—a tiny fraction of the thousands in additional interest many paid due to forbearance steering. Navient admitted no wrongdoing and the settlement allowed the company to continue operating (though banned from federal servicing). The case demonstrated that student loan servicing was predatory by design, with servicers profiting from borrower confusion and distress rather than helping borrowers succeed. The fraud occurred alongside Betsy DeVos’s Education Department refusing to provide relief for fraud victims, showing systemic capture across both loan origination (predatory colleges) and servicing.