Navient faces $120M fine, ban over student loan abuse claims from consumer watchdog

The Consumer Financial Protection Bureau filed a proposed order Thursday to permanently ban Herndon-based Navient, formerly the nation’s largest student loan servicer, from servicing federal student loans and fine the company $120 million.

“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 its settlement announcement. “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.”

If approved by the U.S. District Court for the Middle District of Pennsylvania, where the CFPB filed a lawsuit against Navient in 2017, the company would be permanently prohibited from servicing federal direct loans and directly servicing or acquiring most loans under the Federal Family Education Loan Program. Under the order, Navient would have to pay a $20 million penalty into the CFPB’s victims relief fund and provide $100 million in redress for harmed borrowers.

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

In 2017, Navient serviced the student loans of more than 12 million borrowers, including more than 6 million under its contract with the U.S. Department of Education, totaling more than $300 billion in federal and private student loans. It was part of Sallie Mae — the nickname for the Student Loan Marketing Association — until 2014, when the student loan giant created by Congress split into two entities: Sallie Mae Bank and Navient. Led by CEO David L. Yowen, who was appointed to his post last year, Navient was listed No. 657 on the 2024 Fortune 1,000 list.

In a statement Thursday, Navient said, “This agreement puts these decade-old issues behind us. 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, the statement continued, “is no longer a servicer or purchaser of federal student loans. In 2021, with the approval of the Department of Education, Navient transferred its contract to service government student loans to a third party, and earlier this year, Navient reached an agreement to outsource student loan servicing of its legacy FFELP student loan portfolios, which began on July 1, 2024. Navient will oversee its third-party servicing provider to meet all operational terms of the agreement.”

According to the CFPB, its investigation leading to the 2017 lawsuit “kicked off a series of efforts by state and federal agencies to examine forbearance steering and other breakdowns in the income-driven repayment program. Those efforts have resulted in more than $50 billion in debt relief for more than 1 million borrowers who were wrongly steered into forbearance, as well as those who had payments miscounted. Today’s order complements actions already taken by the Department of Education and state attorneys general to provide redress to borrowers harmed by Navient.”

In 2014, the U.S. Department of Justice and the Federal Deposit Insurance Corp. (FDIC) ordered Navient and Sallie Mae to pay almost $100 million for illegally overcharging nearly 78,000 military members, according to the CFPB, and in 2022, 39 state attorneys general — including in Virginia — announced a $1.85 billion settlement with Navient for “originating predatory student loans in addition to its forbearance steering practices.”

In 2021, Navient’s DOE loan servicing contract ended, and in May, Navient announced it would transfer its remaining 2.7 million private student loans to a third-party company, Mohela, where nearly 900 Navient employees were expected to transfer by July. Nicknamed Mohela, the Missouri Higher Education Loan Authority itself has been sued for overcharging student loan borrowers, including in a lawsuit filed in July by the American Federation of Teachers.