Thousands of Arizona student loan borrowers can expect relief after Navient settlement

Thousands of Arizonans should get some relief on their student loans as part of a nationwide settlement with loan servicer Navient.

About 2,200 Arizona borrowers are expected to receive over $54 million in debt relief, and more than 12,400 Arizonans will receive over $3.3 million in restitution under the proposed court settlement agreement, according to the Arizona Attorney General’s Office.

The $1.85 billion settlement, announced Thursday, resolves a lawsuit brought by a handful of states that claimed Navient had used unfair, predatory and deceptive student loan servicing practices, which Navient has denied.

Attorneys general argued that Navient had funneled borrowers into costly forbearances instead of letting them know about the benefits of more cost-effective payment plans, for example, and had issued unfair loans to students at for-profit schools.

It’s disappointing how Navient took advantage of distressed loan borrowers who were simply trying to get an education to better their lives, Arizona Attorney General Mark Brnovich said in a statement.

I hope these settlement dollars will go towards making it right for them and also send a strong message to any other loan servicers that if you take advantage of consumers, you will be held accountable.

The case was led by Pennsylvania, Washington, Illinois, Massachusetts and California, and the settlement was joined by attorneys general from Arizona and 33 other states.

Navient is one of the largest student loan services in the country and was previously called Sallie Mae. The proposed settlements filed in each state still need court approval.

Rich Nickel, president and CEO of Education Forward Arizona, said the settlement is « great news » for the borrowers who will benefit from it.

« Many of them have spent years or a decade or more fighting some of these claims and also struggling under the weight of some of these loans that were made to them knowing from the beginning there may not have been a great chance they’d be able to pay them back, » he said.

Claims made in states’ lawsuit

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Attorneys general argued in the lawsuit that borrowers had added interest and increased debt because Navient steered them towards forbearances when borrowers instead could have used programs to reduce payments and get interest subsidies.

States also claimed that Navient provided predatory subprime private loans to students at for-profit schools with low graduation rates, while knowing many of those borrowers couldn’t repay them.

Nickel said that aspect is of particular interest for Arizona given the state has many for-profit schools, including headquarters for at least one major for-profit, the University of Phoenix.

But at this point, it’s not clear who the about 2,200 students that will get relief from that are, as the loans were taken out years ago and the relief is for people who live in Arizona now, he said.

Navient officials are denying the allegations but said the company agreed to the settlement because the lawsuits started over eight years ago and still weren’t near trial.

The company’s decision to resolve these matters, which were based on unfounded claims, allows us to avoid the additional burden, expense, time and distraction to prevail in court, said Mark Heleen, Navient’s chief legal officer. « Navient is and has been continually focused on helping student loan borrowers understand and select the right payment options to fit their needs.

As a result of the settlement, Navient should provide $1.85 billion in relief to borrowers nationwide, including canceling more than $1.7 billion in private loan balances for about 66,000 borrowers. Navient also will pay attorneys general a total of $142.5 million (Arizona is expecting about $3.6 million for its consumer protection fund).

And about 350,000 federal student loan borrowers across the country are expected to get restitution payments of about $260 each to compensate those who were in certain long-term forbearances that put them further into debt.

Borrowers should receive notifications

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Borrowers who qualify for the federal loan relief don’t need to do anything except make sure their account at is updated so that the U.S. Department of Education has their current address. Those eligible for a $260 restitution payment should get a postcard about it this spring. Affected borrowers are those who were steered into forbearance between 2009 and 2017.

Navient is expected to send notices to borrowers who will get private loan debt cancellation by July. They’ll also get refunds of payments made on the canceled private loans after . Borrowers who qualify for that are those who took out a loan between 2002 and 2014 for attending certain for-profit schools.

The settlement comes amid an extended freeze on federal student loan repayments until May 1 due to effects of the pandemic. Some Democrats and advocacy groups have pressured the Biden administration to cancel student debt. More than 40 million Americans have a combined total of about $1.7 trillion in student loans.