Navient Corp., Puerto Rico gov’t agree to void $7.7M in student loan debt
The settlement agreement does not include a breakdown of how the restitution will be distributed.
Former federal student loan handler Navient Corp., based in Virginia, has reached a settlement with the government of Puerto Rico to “discharge and forgive” nearly $7.7 million of private education loans on the island, according to a settlement agreement released late last week.
Navient, formerly known as Sallie Mae, was the largest student loan servicer in the U.S. before exiting the federal student loan servicing business in 2021. Navient managed loans for more than 12 million borrowers, including in Puerto Rico.
The lawsuit filed by the Commonwealth of Puerto Rico in August 2023, alleged that Navient harmed Puerto Rican borrowers by “promoting high-risk, expensive subprime loans and failing to properly service those loans.”
Navient is no longer a servicer or purchaser of federal student loans. In 2021, with approval from the Department of Education, Navient transferred its contract for federal loan servicing to a third party. Earlier this year, Navient outsourced the servicing of its legacy FFELP student loan portfolios, which began on July 1, 2024. Navient will oversee the third-party servicer to ensure compliance with operational terms.
Puerto Rico’s Department of Justice accused Navient of issuing subprime loans to borrowers it knew were likely to default. These loans were often bundled with other federal student loans on “preferred lender” lists at schools, giving Navient a near-monopoly on student lending. This strategy allowed Navient to access lucrative federal loan markets despite knowing the repayment risks of the subprime loans.
The commonwealth also claimed that Navient misled borrowers about loan terms, making it difficult to manage their debt. The lawsuit further accused Navient of prioritizing profits over borrowers’ interests by encouraging forbearances, which were easier for customer service representatives to process, rather than income-driven repayment (IDR) plans that required more paperwork.
The complaint cited repeated payment processing errors by Navient, which led to late fees, additional interest and negative credit reporting for borrowers, causing lasting financial harm..
Despite multiple borrower complaints, Navient allegedly failed to implement proper processes to prevent these errors from recurring.
The settlement does not specify how the $7.7 million in restitution will be distributed.
